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What to hold alongside one of investors’ favourite funds: Royal London Sustainable World Trust

13 October 2021

Trustnet asked fund pickers what to hold alongside one of the most popular sustainable funds, Royal London Sustainable World Trust.

By Eve Maddock-Jones,

Reporter, Trustnet

Royal London Sustainable World Trust is one of the most popular options for sustainable investing, recent research by Trustnet found, but what should investors be holding alongside it?

Last week, Trustnet looked at which sustainable funds had been the most popular with DIY investors over the past five years and Royal London Sustainable World Trust was the only name to appear on multiple lists.

The fund has been run by FE fundinfo Alpha Manager Mike Fox since its launch in 2009, with co-managers George Crowdy and Sebastien Beguelin joining earlier this year.

The portfolio is split between equities and bonds, although it is skewed towards the former. All assets undergo Royal London’s sustainability testing and must have a net positive benefit for society.

The Royal London Sustainable World Trust is an example of genuine sustainable investment, according to Square Mile Investment Consulting and Research Limited.

They said: “Many investment groups claim to have environmental, social and governance (ESG) considerations integrated within their research processes, however the Sustainable Investment (SI) team at RLAM truly lives up to that claim.”

Square Mile added that the fund is a “strong option” for investors looking for a mixture of equities and bonds and the benefit of companies with sustainable practices.

This process has produced the best returns in the IA Mixed Investment 40-85% Shares sector over most time frames up to and including 10 years, returning 316.1% over the past decade.

Performance of fund vs sector and index over 10yrs

 

Source: FE Analytics

However, very few funds are truly one-stop shops. As such, investors who already invest in the fund may wish to hold others alongside. Below Trustnet asked fund pickers which portfolios they would recommend holding alongside it.

 

Impax Environmental Markets

First is another sustainable pick to fill out the areas Royal London Sustainable World Trust doesn’t cover, Impax Environmental Markets.

The £1bn fund is co-managed by Bruce Jenkyn-Jones and Jon Forster, investing in global companies providing solutions to environmental problems via their products, such as making basic services like energy, water and waste more efficient.

Louie French, sustainable portfolio manager at Tilney, picked the fund and said the team was “well respected specialists in this area of the market.”

Part of the managers’ process involves reporting the positive impact of its investments, including the net CO2 emissions avoided, renewable energy generated and the treatment for waste and water allowing it to quantifying the genuine impact these companies have on the world.

Like the Royal London fund, its skew towards ethical investing has not hampered returns. Since it launched in 2004 the fund has beaten the MSCI ACWI index, returning 417%.

Performance of fund vs sector and index since launch

 

Source: FE Analytics

 

 

FSSA Asia Focus

The next pick takes a step away from sustainability and focuses on adding regional diversification.

Emma Wall, head of investment analysis at Hargreaves Lansdown, pointed out that the Royal London option was very exposed to the US – almost 50% of the fund is invested there – so investors should look for some diversification to go alongside this.

To achieve this, she recommended FSSA Asia Focus, a fund invested in Asia Pacific large and mid-cap companies, a region the Royal London fund has no direct exposure to.

Although Wall picked the fund as an option for regional diversification it also uses ESG criteria, meaning it is “still ideal for investors who want their portfolios to be mindful of ESG concerns,” Wall said.

Alpha Manager Martin Lau and co-manager Richard Jones prefer companies that have a long-term vision for growth and returns, combined with a sense of corporate responsibility.

Over five years FSSA Asia Focus made the 19th best returns in the sector up 74.7%. However, Wall said that due to the region it invests in, the fund can be fairly volatile, even with the long-term outlook. Investors should decide their risk appetite and then decide how to diversify in line with that, she added.

Performance of fund vs sector and index over 5yrs

 

Source: FE Analytics

 

Alliance Trust

Last up is a closed-ended option, Alliance Trust, picked by James Carthew, head of investment companies at QuotedData.

Alliance Trust is an active multi-manager portfolio. The investment managers, Willis Towers Watson, sub-contract the management of the trust to 10 stock-pickers with different styles, each of which runs a 20-stock portfolio. This makes it more broadly diversified than the Royal London fund, an ideal option to work alongside the latter, Carthew explained.

Again, it is still suitable for investors with sustainability requirements, as the portfolio aims to reduce its exposure to risks associated with sustainability themes, relative to the MSCI ACWI.

“The result is an ESG-friendly portfolio whose returns are ahead of the benchmark index since the trust adopted this new strategy almost five years ago,” Carthew said.

Launched in 1888 the fund has outperformed both the benchmark and index. Over 10 years it made 278%.

Performance of fund vs sector and index over 5yrs

 

Source: FE Analytics

The £3bn trust is currently running on a 5.4% share price discount to its net asset value. It has 9% gearing and a 1.46% dividend yield.

 

 

 

Portfolio

OCF

FSSA Asia Focus

0.9%

Impax Environmental Markets

1.66%

Alliance Trust

0.64%

 

 

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.