Liontrust Sustainable Investment Annual Review 2021 - Flipbook - Page 13
As the previous two pages show, we continued to generate strong
performance last year, with all but one of our UK-domiciled funds in
the top quartile in their respective IA peer groups over 12 months
and all 10 in the first quartile over three and five years to the end
of 2019.
three, five, seven and 10 years to the end of 2019. Looking at
the 10-year period, the SF Managed Fund has generated a return
of 161.1% versus 94.0% by the average fund in the IA Mixed
Investment 40-85% Shares sector* and this represents significant
outperformance for a managed portfolio.
Our funds are built to outperform over the longer term and the Liontrust
SF Managed Fund is now in the top quartile in its sector over one,
The Bond angle
Three pillars of the process
Maximise Sustainability
1
Sustainability analysis
Positive screening
Negative screening
Best In Class
Maximise Quality
2
Credit analysis
High-quality issuers
Macro analysis
Maximise Value
3
Finding value
Dynamic approach
Focused portfolio
We believe there are considerable benefits in applying a
sustainable investment approach to fixed income funds, potentially
enhancing performance and reducing volatility. Like all fund
managers, however, we face the ongoing challenge that direct
causation between ESG credentials and performance remains
difficult to prove and this is especially true for fixed income.
Nevertheless, there are correlations, and we believe focusing on
more sustainable parts of the market and avoiding companies and
sectors challenged by environmental and societal considerations can
drive performance. Not only do sustainable companies typically
have better growth potential, they are also more resilient than the
market thinks. As exhibit one, we present our SF Corporate Bond
Fund, which has generated first quartile returns over one, three and
five years, and since the current team has been at the helm from
August 2012**.
Our fixed income investment process seeks to invest in businesses
providing solutions to the world’s problems and coupling this
with strong credit fundamentals and, most importantly, attractive
valuations. Combining all three elements — sustainability, value and
fundamentals — has helped to steer us through volatile markets and
deliver returns to clients.
Industries and sectors that damage society and the environment are
susceptible to either enforced regulatory change and/or evolving
consumer habits, both of which can be detrimental to long-term returns.
In the SF Corporate Bond portfolio, we have never had exposure to oil,
coal, mining, autos (internal combustion engine), nuclear or tobacco,
to name a few – and these sectors have not only underperformed on
the whole but have done so with considerable volatility.
Moving to sectors where we do find opportunities: within banks, for
example, our process leads us to favour companies that predominately
generate revenues from retail and commercial banking operations as
opposed to investment banking.
In the electricity sector, we focus on companies that major in
renewable energy and/or specialise in the transmission (National
Grid) or distribution of energy (Western Power Networks) as
we believe these segments immunise our portfolios from energy
transition risk.
Another is the telecommunications sector, which contributes towards
raising standards in health, education, employment and empowerment
of local communities, providing the infrastructure of the knowledge
economy, dematerialisation and enabling other sectors of the economy
to move towards sustainability.
*Source: Financial Express, as at 31.12.19, primary share class, total return, net of fees and income/interest reinvested. **Source: Financial Express, as at 31.12.19, primary share
class, total return, net of fees and income/interest reinvested. The current fund management team took over responsibility for the SF Corporate Bond Fund on 20.08.12.
12 - Liontrust Sustainable Investment: Annual Review 2019
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