Liontrust Sustainable Future UK Growth – added to the Foundation Fundlist

We believe this fund is a strong option for exposure to UK shares and a wide range of sustainability themes.

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  1. Rob Morgan

Liontrust Sustainable Future UK Growth invests in 40 to 60 UK companies that meet the managers’ rules for environmental and social responsibility. The managers, Neil Brown and Peter Michaelis look for high-quality businesses with strong growth prospects, believing the companies that will survive and thrive are those focused on improving people’s quality of life, driving efficiency in the use of scarce resources, and building resilient, prosperous and stable societies.

The managers joined Liontrust in April 2017, following the fund group’s acquisition of Alliance Trust Investments, and have continued to run the fund in the same way as before. Before joining Alliance Trust in August 2012, Mr Michaelis and Simon Clements (another key member of the team) spent 11 years at Aviva Investors as Head of Sustainable and Responsible Investment and Head of Global Equities respectively. This means that, unlike many new entrants in the ethical arena, the team’s performance record can be traced back a long way.

The investment themes used by the fund encompass safety, resilience, health, quality of life and efficiency, with each stock analysed for both ESG (environmental, sustainability and governance) factors as well as return potential, which includes a forecast of future earnings and analysis of the current valuation. There is case-by-case approach to engagement with companies on ESG issues. Top holdings include Prudential, Worldpay, GlaxoSmithKline, ABCAM and RELX, and ‘more efficient’ category features Kingspan, Croda, and John Laing.

The fund actively mitigates its carbon footprint, with its holdings emitting 76% less carbon than the MSCI UK benchmark, with more than 18% in technology companies that directly cut emissions and nothing invested in fossil fuel extraction. There are currently eight proactive engagement initiatives including the sustainable use of plastics, corporate tax responsibility and clothing supply chains.

Despite not holding BP and Shell (which fared well as the oil price rose) the fund had a standout year, adding to its long-term outperformance in the process. Past performance is not a guide to the future. Stock selection in technology and biotech (notably ABCAM, Softcat and Oxford Biomedica) and a zero position in tobacco helped.

Our view

Stylistically, there is a bias to quality ‘growth’ companies and sustainability themes likely to benefit from long-term structural trends. As such, the fund could be reliant on stable economic conditions continuing for further outperformance. A sudden economic or political shock could result in underperformance and returns could deviate quite significantly from the index or a tracker fund. For longer term investors, though, we believe the fund is a strong option for exposure to a wide range of sustainability themes. We add it to the Foundation Fundlist of our preferred investments.

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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