ii ACE 40 investments:
M&G European Sustain Paris Aligned Fund

Why we recommend it

John William Olsen took over this strategy in July 2014, having joined M&G earlier that year from Danske Capital, where he had built strong track records on global and European strategies. In addition to this strategy, Olsen manages the Global and Positive Impact strategies.

Olsen employs broadly the same process here as he did at Danske which is to focus on finding companies with sustainable competitive advantages that should lead to pricing power and superior returns over the long term, and then wait for an opportunity to buy them at attractive valuations. In 2021, the process was adapted to include carbon research. The aim of this is to help identify companies which have a meaningful plan to reduce their carbon emissions using science-based targets, and thus aligning the portfolio to the Paris agreement to limit temperature rises to 1.5 degrees. Furthermore, there is the requirement for the portfolio to have a weighted carbon intensity at least 50% lower than the benchmark. The portfolio is typically concentrated in 25-35 stocks with investments broadly split into “stable growth” (companies with a large competitive advantage) and “opportunities” (narrower competitive advantage) stocks, but this is a sliding scale of quality/valuation rather than a barbell. Opportunities stocks have more operational risk but greater potential upside, and the manager requires a larger margin of safety on the valuation for such stocks. With its re-focus on carbon, there are now some additional exclusions, such as gambling and weapons.

Performance over Olsen's tenure has been strong and given the fund's quality characteristics, we broadly expect the fund to hold up better than peers in falling markets but potentially lag in strongly rising markets. Additionally, the concentrated nature of the portfolio may at times mean that the fund's return profile is more volatile than that of peers.

The fund benefits from strong execution of a well-formed investment process and we have a high degree of conviction in the manager’s approach and the level of detail in the team’s research. While a concentrated portfolio brings the potential for higher volatility, we think the manager has demonstrated the ability to manage such portfolios effectively. The fund's requirement for investee companies to have a meaningful plan to reduce their carbon emissions with science-based targets allows investors a meaningful and measurable way to align with the Paris Agreement. 

Ethical criteria

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 Tilt. These funds integrate sustainability considerations into their investment process in order to help to make better investment decisions, but investments are not driven by sustainability themes. These funds may invest in most company types and may be ‘overweight’ in companies with higher standards and ‘underweight’ in companies with poor practices – rather than necessarily excluding them. They may work to encourage more sustainable business practices through stewardship activity.

The risks

Ethical screening: In certain market conditions, the performance of the fund may differ significantly from others in the peer group that do not exclude specific sectors or companies from a comparable investment universe.

High conviction approach: The strategy carries a higher risk, albeit with risk management controls in place. The fund, therefore, might not be suitable for investors with a lower risk profile.

Currency: Your investment may be significantly affected by changes in currency exchange rates.