Liontrust Sustainable Investment Annual Review 2021 - International - Report - Page 12
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 strategies,
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 Fixed
Income strategy.
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
12 - Liontrust Sustainable Investment: Annual Review 2019
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.
