|Asset Group||Asset Sub-Group||Investment Category|
|Fixed Income||Sterling bonds||Core|
Why we recommend it
The fund has a long track record dating back to February 2001, but has been managed by Stuart Steven since he joined the Sustainable Investment team in 2013 and moved to Liontrust with the rest of the team in 2017 when the company acquired Alliance Trust Investments. However, Stuart Steven will retire from fund management and leave the business in September 2023, with the current co-managers absorbing his responsibilities.
The fund invests a minimum of 80% in investment grade corporate bonds that are sterling denominated or hedged back to sterling and aims to outperform the iBoxx GBP Corporate All Maturities Index. The team focus their efforts on finding high quality bond issuers by combining credit analysis with in-depth analysis of issuer specific factors, including ESG and macroeconomic analysis. Where relevant, the team also aim to identify companies whose core products or services are making a positive contribution to society or the environment.
The fund has typically held around 20% in European issuers and 5% in U.S issuers and has included selected opportunities in high yield names. Government bonds are used to implement the fund’s overall duration positioning. Sector exposure is well diversified and typically within 5% of the index. At just under half of the portfolio currently, financials have historically been the largest sector exposure.
Under Steven’s tenure, the fund has delivered an annualised return of 2.60%, vs 2.72% from the index and 2.13% from the IA Corporate Bond peer group, placing 2nd quartile. Credit and sector positioning has added significant value, though this has been undermined by underweight duration position during the period of low government bond yields.
While Steven’s departure will be a loss for the sustainable team given his experience and tenure, he has worked closely with co-managers Kenny Watson, Aitken Ross, and Jack Willis in credit and rates strategy and decision-making. The three have close to a decade of average tenure on a team that has shown good stability, leaving them well placed to provide succession. We expect no change in process or approach. This handover will commence in April 2023.
The fund’s returns are not compelling relative to the index or peers; however it has been able to keep pace over a long period, and for investors seeking a specific ESG mandate, this fund is good option due to a disciplined and integrated approach to sustainable investing, which uses a well-structured process crafted by a long-standing team.
The fund is reasonably priced: The ‘2’ income share class levies annual ongoing charges of 0.56%.
ii ACE sustainable style: Considers. This means the fund carefully considers an often wide range of ethical and/ or environmental, social and governance (ESG) issues or themes when balancing positive and negative factors.
Fund EcoMarket category: Sustainability Themed. This relates to funds that focus on sustainability related issues and opportunities as part of their investment strategy, often alongside ethical criteria. Their focus is often around longer term societal and environmental trends.
|Information and data compiled March 2023.|
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