Foundation Fundlist socially responsible funds: six months on

We added several socially responsible investments to our list of preferred investments last November. Here’s how they have fared since.

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  1. Rob Morgan

Through Charles Stanley Direct you can choose from thousands of investments including shares, funds and investment trusts. For those needing help to narrow the field we offer the Foundation Fundlist, a shortlist of our favourite investments across the major investment areas. This also provides some options for those wishing to invest responsibly.

Ethical and socially responsible investing has become increasingly popular as more people want their investments to make a positive contribution. This type of investing typically encourages corporate behaviour that promotes environmental stewardship, resource efficiency and social inclusion, while avoiding businesses involved in areas deemed harmful.

It has been around six months since we added a selection of these funds to our Foundation Fundlist of preferred investments across the major sectors. We chose funds to cover broader investments areas such as global equities, UK equities and bonds. Inclusion does not imply a specific recommendation; any ethical or sustainable fund should be carefully considered to see if it fits with your own principles as well as investment needs.

Although this is a short time period in the context of longer term investing, here’s how the funds have fared so far – the period in question covers the considerable volatility of the last couple of months of 2018 and the strong bounce seen so far this year.

Baillie Gifford Positive Change 

This fund shares a number of characteristics with other Baillie Gifford global funds: A high-conviction, concentrated portfolio, which increases risk as well as return potential, a search for exceptional growth businesses, and a low turnover of holdings resulting from investments being kept for the long term.  The difference is this fund specifically aims to contribute toward a more sustainable and inclusive world while generating strong returns by investing in four ‘impact themes’: Social inclusion and education, environment and resource needs, healthcare and quality of life and ‘base of the pyramid’ (companies addressing the basic needs of the global poorest). 

The fund has underperformed its global benchmark over the past six months having previously strongly outperformed. Large positions in gene sequencing machine manufacturer Illumina and Google parent company Alphabet lagged in their respective areas. Meanwhile, the share price of electric car pioneer Tesla came under pressure. Geographically, the fund’s orientation to Europe was a hindrance as US and Asian markets fared better. Holdings in China’s Tencent and Bank Rakyat Indonsia, which promotes financial inclusion by providing savings and loans, were strong performers over the period, though. It is typical for this fund’s performance to deviate substantially from that of its benchmark and peers given the concentrated portfolio and the volatility of many of its holdings.

EdenTree Amity International 

This is a long-standing ethical fund with a stable team and a ‘value’ led philosophy. Stocks must pass both negative and positive screens in order to be considered for inclusion in the portfolio. We believe the fund offers a differentiated portfolio of responsible and sustainable companies, and important diversification from the more growth-oriented funds that are prevalent in the ethical space.

Given ‘growth’ orientated investments maintained their ascendancy over ‘value’ during the period it was not a surprise to see the fund underperform. A relative lack of exposure to technology stocks was also an issue, and the fund’s largest position in that sector, Alphabet, announced results that underwhelmed investors. Sony fell on concerns of slowing growth and lack of restructuring momentum, but signs of improving trade rhetoric between the US and China provided stimulus for a number of holdings such as Chroma Ate, a Taiwanese supplier of precision measurement instruments, and Horiba, which similarly contributes to environmental protection through its testing products, such as radiation monitors, and gas and water quality analysers.

FP WHEB Sustainability Fund

WHEB is a small boutique investment house that features a stable and highly experienced team in the field of sustainable and impact investing. In contrast to some forms of ethical investing, which seek to simply screen out companies engaged in ‘unacceptable’ practices, WHEB focus on the positive, targeting opportunities created by the transition to a low carbon and sustainable global economy. The managers argue that in doing so they should ultimately outperform as this trend is inevitable, and well-run companies providing solutions to sustainability challenges should be poised to thrive.

Overall, it was a strong six-month period for the fund as many of the more economically-sensitive areas in which the fund is invested fared well. Siemens Gamesa, the world’s second largest wind turbine manufacturer, was a positive contributor, having reported strong order growth and stable prices. A number of holdings designed to benefit from resource efficiency were also strong, including Roper Technologies whose energy systems and controls products improve efficiency in industrial processes.

Weaker performance came from Nautilus, a manufacturer of gym equipment and the launch of its new artificial intelligence training platform failed to meet market expectations in an increasingly competitive market. The managers lost confidence in the longer-term outlook for the company and decided to sell. Meanwhile, Tivity Health, which runs exercise programmes for the elderly and therefore reduces their insurance premiums, also struggled following the announcement that it will acquire Nutrisystem, a provider of scientifically-designed meal deliveries. However, the fund’s managers believe the could create an important company in the US preventative care market.

Foundation Fundlist ethical funds - table 1

Past performance is not a reliable indicator of future returns. Figures are shown on a total return basis, bid to bid price with net income reinvested. 6 months performance 08/11/18 to 08/05/19 Source: FE Analytics.


Liontrust Sustainable Future UK Growth

This UK equity fund invests in 40 to 60 UK companies that meet the managers’ rules for environmental and social responsibility. The portfolio is constructed from high-quality stocks with a strong sustainability theme benefitting from long-term secular drivers and structural trends. The management team is highly regarded having established a track record at Aviva and Alliance Trust prior to joining Liontrust.

The past six months has been relatively successful with the fund outpacing the broader market and its peer group average. April was the defining month with the fund broadly tracking its sector average up until that point. Kingspan was a notable strong performer in the top ten holdings of the fund. The Irish firm is a leading supplier of high performance building insulation and materials that reduce energy consumption in residential and commercial buildings.

Private equity firm 3i and efficiency software provider Softcat were also particularly fruitful positions, as was GW Pharmaceuticals in the wake of its Epidiolex product in November, a prescription medicine used to treat seizures. Recycled corrugated board, Smurfit Kappa, was a laggard, though, with investors worried about new cardboard manufacturing capacity coming online, which would put pressure on pricing. CVS, the biggest veterinary services company in the UK, was another poor performer and the managers chose to exit the position. The cost of vets and locums has dramatically increased due to a supply/demand imbalance in the profession and this has undermined their original investment rationale.

Foundation Fundlist ethical funds - table 2

Past performance is not a reliable indicator of future returns. Figures are shown on a total return basis, bid to bid price with net income reinvested. 6 months performance 08/11/18 to 08/05/19 Source: FE Analytics.


Threadneedle UK Social Bond Fund 

A partnership between Columbia Threadneedle and Big Issue Invest, this bond fund seeks to provide investors with income by backing companies and organisations in supporting socially beneficial activities in eight areas: Affordable housing, education, employment and training, health and social care, financial inclusion, community services, transport and communication infrastructure, and utilities and the environment.

Bond markets have primarily been dictated by the outlook for global interest rates in recent months and this fund had largely followed recent trends. The end of December was characterised by weakness in higher yielding bonds, as market participants became increasingly worried that the US Federal Reserve was making a policy error by tightening into an economic slowdown. This fund is conservatively managed with a broadly defensive mix of high-quality bonds weathered this well. However, the fund has also lagged in the rally since the start of 2019 as the US Federal Reserve allayed concerns that interest rates would be increased too aggressively.

The manger, Simon Bond, believes strong demand for income without too much risk remains a powerful support for high-quality corporate bonds while interest rates are still very low. He took the opportunity to increase exposure to financial institutions such as Nationwide Building Society and Lloyds ESG bonds during weakness towards the end of last year. He also added to areas such as retail and healthcare.

As usual, the manager opted to take advantage of various new issues in the growing Green Bond Market. One was issued by Spanish utility company Iberdrola to fund two projects, the largest of which consists of over 100 wind turbines off the East Anglian coast. The expected generating capacity of more than 714 megawatts aims to provide clean energy to nearly 600,000 British homes from 2020.

In affordable housing, the fund participated in several new issues including Paragon Astra, Clarion Futures Group and Incommunities. Incommunities offers primarily social housing in the Leeds City Region and has a focus on increasing housing stock with has clear measures for investing in the communities in which it operates.

Foundation Fundlist ethical funds - table 3

Past performance is not a reliable indicator of future returns. Figures are shown on a total return basis, bid to bid price with net income reinvested. 6 months performance 08/11/18 to 08/05/19 Source: FE Analytics.


Past performance is not a reliable guide to future returns. This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice.

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