Mike Fox, manager of Royal London Sustainable World Trust, gives Moneywise’s Helen Knapman the lowdown on his fund – a new addition to our First 50 Funds list for beginner investors.
What is the fund?
We invest in both global equities [company shares] and fixed income [such as bonds]. We have about 50 to 60 holdings in equities and up to 200 in fixed income.
The key point of differentiation is that this is a sustainable fund, which means it considers environmental, social and corporate governance (ESG) issues alongside financial ones. This gives consumers the option to do something positive with their money.
How does the sustainable mandate work in practice?
Firstly, it’s worth noting that ethical and sustainable funds are quite different. Ethical is mainly about avoidance and negative screening, whereas sustainable is about positive screening.
The sectors we avoid completely are armaments and tobacco, and then after that, every company we come across we apply a positive test to. We look at the products and services of the company to see if it has a social benefit – for example, healthcare, technology, certain types of infrastructure, such as the supply of water and utilities.
Has sustainable investing increased in popularity?
About two to three years ago, there was a real increase in people putting money into the fund – there’s more of an acceptance of sustainability as a concept now.
How do you pick the stocks?
One way is to look at social opportunities and social issues. We then find companies that provide solutions for these issues, after which we do the financial analysis.
But to be clear, companies have to be attractive financially as well as from a sustainability perspective. On financials, we have two main criteria – that companies create value and provide long-term growth. In terms of equities, we have an average five-year holding period. But some stocks, such as pharmaceutical company AstraZeneca, online search engine Google and London property developer Shaftesbury, we’ve held for 10 years.
What sustainable themes are you looking at?
Recently, we’ve been investing in electric and autonomous vehicles, artificial intelligence (AI), and cloud computing.
In the past 12 months we’ve invested in Aptiv in the US and Valeo in France, which make components for electric and autonomous vehicles. Another area that is growing in the fund is natural, sustainable ingredients, fuelled by the trend for healthy eating. This could be companies that produce natural sweeteners, for example. Here we invest in a number of companies, including Symrise in Germany and Novozymes in Denmark.
When investing we apply a positive test to a company to see if has a social benefit
Going forward, automation is the biggest debate for us. Most people start with the idea that automation is negative because it can result in job losses, but it’s a lot more nuanced than that. Firstly, the jobs that are more likely to be automated are what’s called the three ‘ds’ – dull, dirty and dangerous. Secondly, there are certain countries with huge demographic issues, such as Japan [with its ageing population], which may have problems producing basic services without automation. Thirdly, people are very unimaginative – automation could actually lead to the creation of new jobs. We haven’t invested in any companies in this space, but we have been looking at Keyence in Japan and Trimble in the US.
What companies and sustainable themes have you been selling out of?
Thematic investing is quite slow-moving – there hasn’t been a recent theme we’ve sold out of, although about three or four years ago we sold out of the emerging markets theme as we thought it had played out from an investment perspective.
We think technology is socially and economically positive and that’s why we currently invest in it, but in future there is a risk that companies don’t respond to users’ requirements in terms of privacy. If these companies don’t evolve, it could become a regulatory and political issue, which would make it an investment risk. Amazon, for example, is always an interesting one to debate, as everyone has a view on it. We think its cloud computing and retail business has social positives, such as enabling smaller businesses to use the platform, but it’s also a marketplace disrupter.
The other time we sell is when sometimes we get it wrong or when an event happens that you couldn’t foresee. In the past 12 months, stocks we’ve sold include Qualcomm – a US semiconductor company – with persistent governance and intellectual property issues, and BT, which has had problems with the UK regulator and governance issues in Italy.
What’s been your best and worst investment decision?
The best was to invest in cloud computing – Amazon, Google, and Microsoft, all of which we still hold. The worst is BT.
What’s your top tip for a beginner investor?
Patience is everything – the money is made in the waiting, not in the doing. Leaving your investments alone is the hardest thing to do but it’s where you get the compounding effect.
Royal London Sustainable World Trust: Key stats
Launched: November 2012 (i)
Fund size: £460.39 million
OCF: 0.77% (i)
Yield: 0.99% (i)
(i) C Acc share class. Source: Royal London Sustainable World Trust factsheet, 31 May 2018.
The man behind the fund
Mike Fox joined Royal London Asset Management (RLAM) in August 2013, following the acquisition of The Co-operative Asset Management by the Royal London Group. As well as managing Royal London Sustainable World Trust, Mike is head of sustainable investments at RLAM. He first became a fund manager in November 2003, prior to which he was a deputy fund manager and an investment analyst. He originally trained and qualified as a chartered accountant with Ernst & Young.
|Five-year performance of Royal London Sustainable World Trust|
|Royal London Sustainable World Trust C Acc GB||23.56||10.16||9.3||16.27||18.06|
|(i) As Royal London Sustainable World Trust is a fund containing mixed asset classes it doesn't have a benchmark. So we've used its Investment Association sector - mixed investment 40%-85% shares. Source: FE, 12 July 2018, based on discrete performance.|