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?
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% |