In the last few years, sustainability has been one of the most sought-after investment themes.

Figures from the Investment Association reveal that responsible funds have taken £6.7billion of investment in the first half of 2021. That is some £2.4billion more than the previous year. 

This demand has created more opportunities than ever for investors to invest in funds and companies that are focused on ESG (environmental, social, and governance).

According to Morningstar data, 21 ESG fund launched in the UK during the first half and 372 worldwide in the second half.

Responsible funds have taken nearly £7bn in the first half of this year

Responsible funds have taken nearly £7bn in the first half of this year  

It can be difficult to discern the potential impact of your ESG investments due to the market saturation.

We asked four fund selectors to pick their top green funds and trusts. They covered everything from renewable energy to social impact.

Global ESG / sustainable

There are many ESG funds available for investors who want to be exposed to global stocks. However, many of them tend to have the same names as Tesla and the renewable energy company Siemens Gamesa. 

ETFs are a great option for investors new to the market. Some have broad mandates while others focus on specific areas such as energy, food, or water. 

These investments can be favored or disfavored, and experts believe that ESG investing is an active management process due to the research and due diligence required.

Rob Burgeman, investment manager at Brewin Dolphin

Rob Burgeman, investment manager at Brewin Dolphin

Rob Burgeman, investment manager at Brewin Dolphin, says, “We recommend taking a more generalist approach to ensure that you don’t become fixated on the daily and weekly oscillations in individual stock prices but instead focus on the longer-term perspective.”

He chooses AXA WF Global Clean Economy Fund managed by Amanda O’Toole as a strong global ESG funds. 

“[It]Its investment strategy focuses on a pillar that is poised to reap the benefits of the direction of travel we are on. He says that the holdings include businesses that are focused on recycling to water, energy, or food.

Its top holdings include the renewable energy group Siemens Gamesa, food company Darling Ingredients and agricultural machinery supplier Deere & Co. 

It has returned 24.11 percent in the last year, with an ongoing cost of 1.06 percent.

Burgeman also notes Pictet Global Environmental Opportunities as another global sustainability-themed fund option. 

Pictet is an investment house that specializes on sustainable investments. The fund, managed by Gabriel Micheli & Luciano Diana invests in a wide range of US-based life sciences, engineering, and water companies.

Its holdings include Thermo Fisher Scientific, a life sciences company, and Synopsys, a semiconductor company. Autodesk provides software for engineering, construction, and architecture.

It has achieved total returns of 19.2% in the past year, slightly lower than the IA Global sector average.

UK ESG / sustainable

Investment managers love Liontrust Sustainable Future UK Growth in the UK. 

Liontrust has a reputation for being a leader and innovator in ESG since it launched its Sustainable Future Funds in 2001.

Hawksmoor senior fund analyst James Clark

James Clark, Hawksmoor senior analyst for the Hawksmoor fund 

James Clark, senior analyst at the fund firm, said that Hawksmoor invests in three funds in the Liontrust Sustainable Future range of investments and that they hold the team in high regard.

‘This growth-orientated UK equity fund focuses on three broad themes – ‘more efficient’, ‘healthier and with higher quality of life’ and ‘safer and more resilient’ – with around twenty sub-themes, and companies must fit into at least one theme in order to be included in the portfolio.’

“The fund is well-established under Peter Michaelis, with Martyn Jones, co-manager, having come up from an analyst position. 

Liontrust Sustainable Future UK Growth has a strong track record. This includes protecting capital against the downside in weaker equity markets (e.g. 2018 and 2020), but this does NOT mean that it is not possible to outperform in more robust markets (e.g. He adds that 2019 is a good year to be alive.

The fund avoids exposure to miners, oil companies and banks and its top holdings include Legal & General, Unilever and GlaxoSmithKline.

This strategy has proven to be a long-term winner. It has a 73.59% total return over 5years, compared to the FTSE All Share’s 25%.98%.

Burgeman however notes that the trend has reversed over the short term as banks have been re-favored and the oil prices have increased.

Social impact investing

ESG investment has made impact a buzzword. While some funds might use it to denote environmental, most funds have tended to be more focused on funds investing in social impacts projects.

BSC Schroders Impact Trust was the first trust to be exclusively dedicated to impact investing and to list on a stock market. It focuses primarily on high-impact housing and debt for social enterprises.

It was launched by Big Society Capital in partnership with Schroders last Dec.

As of 30 June, the trust had deployed two thirds of its £75million IPO funds into 23 investments. The NAV total returns for this period were 6.1%.

It is expected to pay a maiden distribution of 0.57 pence per shares.

‘Obtaining highly impactful private market exposure has previously been the preserve of institutional investors – due to high investment minimums and partnership fund structures,’ says Daniel Bland, head of Sustainable Investment Management at EQ Investors. 

“The launch of this unique trust for social impact allows access to a variety of social impact investments at an era when social issues are clearly at the forefront.” 

“One reason we’re excited by the Schroders Big Society Capital Trust’s strategy is that it targets several high-impact themes, working with experts from their respective fields. Normally, these third parties are not accessible to most investors.

“These underlying managers specialize in areas such high impact social housing, investment into social enterprises to directly fund community-based projects, as well as social outcome contracts that are only accessible to retail investors through this trust.

The trust stated that there was “potential” for a further fundraise in its most recent results. 

The FP WHEB Sustainability Fund has a reputation for being one of the most comprehensive.

Seb Beloe, WHEB’s head for research, has been called the ‘Cristio Ronaldo of Sustainable Investment’. 

James Clark, Hawksmoor senior fund analyst  

Its top holdings are Royal DSM and Agilent Technologies, a health company that aims to improve global food supply chain efficiency. Its three- and five year returns are 11.06 percent and 11.36%, respectively.

WHEB Asset Management is the manager of the fund. This small boutique is focused solely on ESG strategy management.

It has an independent advisory board to review and scrutinise the holdings. Members vote and reports on the impact of the companies in its portfolio.

‘The WHEB team are sustainable investment specialists – this is all they do, and they have done it for quite a long time now, with this strategy having launched in June 2009. 

Clark says, “I have heard WHEB’s head of research Seb Beleoe called the Cristiano Ronaldo for sustainable investment”, while Ted Franks, the lead manager, is also highly regarded.”

The portfolio includes both large and smaller companies, but it is biased towards medium-sized companies.   

‘The team are conscious of this bias plus the tilt towards high quality companies, so they minimise one further element of risk by maintaining the fund’s geographic weightings at very similar levels to those of its MSCI World benchmark – they want performance to be driven by their themes and investee companies.’

‘As you would imagine, impact reporting is very thorough, which helps WHEB Sustainability stand out in what are considered to be the most funds available for sustainably-minded investor (i.e. Sustainable global equity funds.

Environmental / Green

Environment is undoubtedly the most popular topic for conscious investors. While many sustainable funds incorporate it into their strategy and there are a few that are completely focused on it.

Managers love Ninety One Global Environment Fund, which is run by Deidre Baker and Graeme Baker. It targets businesses that can benefit from decarbonisation trends.

Its top holdings include Nextera Energy and Croda Chemical Company, Trane Technologies which makes heating, ventilation, and other systems, and Iberdrola electric utility firm.

“The fund is part of our Responsible Investment ‘Advance’ portfolios which look to invest companies that either have a’solution’ for the environmental issues we face or are transitioning to being a’responsible company’,” says Isobel, Brooks Macdonald’s investment director.

Isobell Gingell, investment director at Brooks Macdonald

Isobell Gingell, investment director at Brooks Macdonald

“We expect that there will a rapid rise in businesses that offer a solution to decarbonization and it is an important theme for governments. As can be seen in Boris Johnson’s announcement that all electricity should be generated from clean sources in the UK by 2035.

Impax Environmental Markets is the UK’s largest environmental investment trust, and backs companies that focus on products or services to improve our impact on the environment. 

It focuses on clean and efficient energy, water treatment and pollution control, as well as sustainable food and food technology.

Burgeman said: “It offers slightly broader investments than the Baillie Gifford funds, with around 45 percent of its holdings based on the US and a good part in The Netherlands or the UK. 

“Many of these companies may not be household names, but this can make them a good foil for other investments.

“An alternative is to invest in Impax Asset Management Group itself. 

“It has a long, venerable history in impact investing and has performed exceptionally over the past decade as its specialty has become more mainstream.

Renewable energy

Investors who are looking to invest in renewable energy have many options.

Burgeman’s top picks for investment trusts are Greencoat UK Wind, and The Renewable Infrastructure Group. Both invest in renewable energy assets throughout the UK.

“Both of these investment funds currently offer decent yields greater than 5%. 

He says, “But, it is worth noting that they provide access to a set assets, which are more likely to perform as a utility,”

Clark suggests Gresham House Energy Storage as an alternative investment trust that has a portfolio full of battery storage facilities.

‘Gresham House Energy Storage earns revenue from three sources – Frequency Response (real-time power balancing for National Grid), Trading (taking advantage of intra-day price spreads) and Capacity Mechanism (long-term contracts to meet extremes of demand),’ he says.

Managers of trusts can change the location of their battery storage facilities to optimize revenue generation. 

This trust was established in November 2018. It targets 8 percent total returns per annum on a Net Asset Val basis. The target dividend is 7p per share. 

‘The trust is growing, having most recently (July 2021) raised £100m in a placing, and has a strong pipeline of investment opportunities in this exciting asset class.’

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