Sustainable funds managed by BNY Mellon, Liontrust and Brown Advisory are some of the strategies at the heart of GDIM Discretionary Fund Managers’ expanded Ethical Investment Model Portfolios range. 
GDIM started its ethical range a decade ago with two models – Conservative and Balanced – but has just launched the Cautious, Moderately Aggressive and Aggressive Ethical portfolios in response to investor demand and a shift towards more sustainable options.
Tom Sparke, (pictured) investment manager at GDIM, said: “People are becoming more aware and more vocal about looking after the world they’re leaving for their children – and we look forward to helping them align their investments with those goals.”
Sparke added that immediately after launch the two original portfolios were built “from the least, worst options in that space”, as at the time ethical funds were scarcer and sustainable investment options limited. But today “we’ve evolved hugely and have now moved into a universe where there’s quite a lot of different options”, he noted.
At the centre of GDIM’s ethical portfolios is an environmental, social and governance (ESG) screening process which excludes companies that engage with fossil fuels, tobacco, controversial munitions, non-medical animal testing, gambling and adult entertainment - all areas that sustainable strategies typically avoid.
The development of a bigger sustainable investment universe has been driven by a change in consumer attitudes over the past decade, as climate change and other environmental issues have become greater parts of people’s day-to-day lives and reflected in their investment choices.
But there have been some misconceptions that the sustainable investor has been unable to shake, according to GDIM, mainly the ‘myth’ that ethical funds do not provide good returns. Sparke said this is the main misconception he wants to debunk about ethical investment funds.
“Over the vast majority of time frames the ethical versions of our portfolio have outperformed,” he said. “They tend to be especially good at protecting on the downside over the longer term as well – I think because the assets they hold are very high quality.”
One of the main reasons behind this is the governance element of ESG helping to identify companies with better business conduct and stronger balance sheets. “This idea that you’ll get higher volatility or it’ll be one of the worst performers is definitely untrue,” Sparke added.
Keeping up with the ‘ethical revolution’, below we take a closer look at the core funds running through all three of GDIM’s new Cautious, Moderately Aggressive and Aggressive Ethical portfolios, as well as the two existing models.
Brown Advisory US Sustainable Growth
First up is David Powell and Karina Funk’s $483m Brown Advisory US Sustainable Growth fund, which focuses mid- and large-cap US companies. The managers use negative screens to ensure the portfolio is only in responsibly managed companies, as well as aligning their process with the UN Global Compact principles.
“This fund is one we use wider than just in our ESG-centric portfolios due to its excellent performance,” Sparke added. “It has a quality-growth style and has provided admirable downside protection in poorer markets too. It is useful as a core holding in a diversified portfolio, or as an addition to a growth strategy.”
Performance of fund versus sector and index since launch
Source: FE Analytics
The fund has made 69.50 per cent since launch in April 2017, outperforming both the Russell 1000 Growth index and the IA North America sector, ranking it in third place out of 139 funds. In keeping with its “admirable downside protection”, the fund also has one of the sector’s lowest maximum losses as well as the second best Sharpe ratio since launch.
Brown Advisory US Sustainable Growth has an ongoing charges figure (OCF) of 0.64 per cent.
BNY Mellon Sustainable Global Equity
GDIM’s second core strategy is Yuko Takano’s BNY Mellon Sustainable Global Equity fund, a younger sibling of the £5.2bn BNY Global Equity Income fund.
The manager seeks out companies that positively manage the material impacts of their operations and products on the environment and society, while having sustainable ‘red lines’ to exclude the poorest-performing businesses.
“This fund has many of the same qualities as the hugely successful BNY Mellon Global Income fund but with more of a total return bias and the sustainable element too,” Sparke said. “It is a relatively young fund but has a wealth of experience in the management team and has provided a high level of performance so far.”
The £57.2m BNY Mellon Sustainable Global Equity fund has a 45.88 per cent invested in the US, with tech giant Microsoft being its largest holding at 5.04 per cent. FAANG stocks Apple (3.42 per cent) and Alphabet (3.25 per cent) round out its top three.
Performance of fund versus sector and index since launch
Source: FE Analytics
Since launch the fund has made 28.11 per cent, more than the MSCI AC World index’s 12.31 per cent over the same time frame and the IA Global sector’s 9.71 per cent.
BNY Mellon Sustainable Global Equity has an OCF of 0.84 per cent.
Liontrust Sustainable Future UK Growth
Peter Michaelis and Neil Brown’s £541.1m Liontrust Sustainable Future UK Growth fund is the final one highlighted by Sparke and he said the managers have “an excellent ESG process at the roots of their investment approach”.
He said: “The fund follows Liontrust’s ingrained ESG process and also has an enviable record of positive performance in both up and downward moving markets. This is suitable as a core element to a portfolio and could be a useful tool in many different risk portfolios.”
Liontrust’s ESG process looks for companies that have three characteristics: excellent management and core products or services that are making a positive contribution to society; strong growth prospects; and a business model that enables them to grow profitably from these trends.
The fund has outperformed over the past three year with returns of 31.50 per cent, beating the IA UK All Companies peer group (7.95 per cent) and the MSCI United Kingdom (3.54 per cent). It was in the sector’s top quartile in 2017, 2018 and 2019, as well as over 2020 to date.
Over the same time frame, it has been slightly more volatile and had a bigger maximum drawdown than both its average peer and the benchmark – but has one of the highest Sharpe ratios of the IA UK All Companies sector.
Liontrust Sustainable Future UK Growth has an OCF of 0.88 per cent.