Peter Michaelis

Investing for tomorrow, today

Peter Michaelis

Thirty years ago, the IBM PC XT was the pinnacle of technology. Today, we have the iPhone, which is not only much more powerful but can also fit into your pocket and is half a million times more efficient.

Advancements in healthcare have led to dramatic improvements in life expectancy over the past three decades. If a man was diagnosed with prostate cancer 30 years ago, he had a less than 50% chance of living more than five years. Today the odds are around 90%.

These transformative developments not only have positive impacts on society, they have the potential to deliver returns for investors as well. We invest in long-term trends like these and the high-quality companies that are profiting from changing the world through such positive contributions to people and the environment.

Sustainability is an increasingly important theme for today’s consumers, who want what they wear, eat and even drive to both benefit themselves and have a positive impact on the world around them. This is fundamentally changing businesses, from the high street retailer through the industrials and even down to commodity producers.

The origins of ethical investing date back to the Quakers in the US when they did not want to invest in alcohol. The first ethical fund was probably the US PAX Fund, which avoided investing in companies that profited from the Vietnam War.

There are three main approaches to managing ethical and sustainable funds. The traditional approach of ethical investing is to avoid certain industries as the Quakers did, mainly because of the negative effects of their products, with the classic examples being tobacco companies and producers of weapons.

There are other, arguably more interesting, investment approaches, however. One is to invest in sustainable themes, which can be referred to as positive screening because the funds focus on what they do want to invest in. Funds may concentrate on single investment themes such as environmental technology, renewable energy or water. Others have multiple sustainability themes that can include healthcare, resource efficiency and education.

The third approach is engagement, also known as active ownership. In this case, fund managers engage with the companies they invest in so they can influence management into changing positively the strategy or operational management. This can be reflected in voting at Annual General Meetings to impact the business. For example, this could be to improve labour rights in the company’s supply chain, employee safety or other environmental, social or governance issues.

The Liontrust Sustainable Investment team uses all three of these approaches in managing our Funds.

There are three key factors influencing the way business is done and driving more sustainable and responsible corporate behaviour. These are:

  • Consumer pressure: With individuals increasingly aware of the impact of their decisions, demand for sustainable products is increasing. Companies capable of providing sustainable goods, produced in an ethical manner, are well placed.
  • Financial sense: Regulations and legislation increase costs for polluting companies, thereby providing significant impetus for efficiency improvements. Companies creating less pollution and those providing pollution reduction and efficiency technologies should continue to prosper.
  • Political climate and regulation: The environment and related social impacts are now widely regarded as mainstream political issues with policy decisions increasingly made with sustainability in mind. This political will has a marked effect on regulation, as seen in the banking sector, energy policy and emissions regulation, which in turn affects the competitive landscape for businesses. Regulation influences company behaviour and typically favours more sustainable or resilient companies.

Well run companies whose products and operations capitalise on transformative developments such as the two highlighted at the start of this article are able to benefit financially. We believe that identifying these powerful trends and investing in exposed companies can make for attractive and sustainable investments.

Disclaimer

• Past performance is not a guide to future performance. • Do remember that the value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. • The majority of the Liontrust Sustainable Future Funds have holdings which are denominated in currencies other than Sterling and may be affected by movements in exchange rates. Some of these funds invest in emerging markets which may involve a higher element of risk due to less well regulated markets and political and economic instability. Consequently the value of an investment may rise or fall in line with the exchange rates. Liontrust UK Ethical Fund, Liontrust SF European Growth Fund and Liontrust SF UK Growth Fund invest geographically in a narrow range and has a concentrated portfolio of securities, there is an increased risk of volatility which may result in frequent rises and falls in the Fund’s share price. • Liontrust SF Managed Fund, Liontrust SF Corporate Bond Fund, Liontrust SF Cautious Managed Fund, Liontrust SF Defensive Managed Fund and Liontrust Monthly Income Bond Fund invest in bonds and other fixed-interest securities - fluctuations in interest rates are likely to affect the value of these financial instruments. • If long-term interest rates rise, the value of your shares is likely to fall. If you need to access your money quickly it is possible that, in difficult market conditions, it could be hard to sell holdings in corporate bond funds. This is because there is low trading activity in the markets for many of the bonds held by these funds. Mentioned above five funds can also invest in derivatives. Derivatives are used to protect against currencies, credit and interests rates move or for investment purposes. • There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions.


• The information and opinions provided should not be construed as advice for investment in any product or security mentioned.  • Always research your own investments and consult with a regulated investment adviser before investing.
Friday, October 27, 2017, 1:11 PM