- Good science can create a better future and deliver strong investment returns
- Solution-providing businesses tend to be innovative, fast growing, and command high market shares
- Liontrust’s 22 sustainable investment themes guide us to high quality businesses at the forefront of positive change across diversified economic sectors
Tackling climate change is a huge challenge for the world. Yet there are reasons to be positive and companies that are breaking new ground in finding solutions – many of which the Liontrust Sustainable Investment team hold in their portfolio.
About 2.4 billion years ago, cyanobacteria began producing oxygen – a shift that caused a mass extinction, known as the Great Oxidation Event, due to oxygen’s toxicity to most organisms at the time. The lesson? Changing the atmosphere can have severe consequences.
In 1990, we faced another atmospheric challenge: ozone depletion due to CFCs, which threatened life with increased UV exposure, leading to more skin cancers, cataracts, and DNA damage.
In response to this threat, humanity put in place a plan known as the Montreal Protocol. 35 years on, CFC concentrations are being successfully controlled. By mid-century the ozone layer should be restored to pre-industrial levels.
The relevance to delivering strong investment returns
There are three things humans have that the bacteria didn’t – science, government/society; and crucially, profit-seeking businesses.
Science was behind the discovery of the existence of the ozone layer and how CFCs destroy it. Governments came together, resulting in the Montreal Protocol. Business adapted to the new regulations, focusing on demand for better substitute HCFCs. The novel solution became a fantastic opportunity.
This three-way dance between science, governments/society, and business is a fantastic demonstration of how we solve problems.
And solution-providing businesses have good long term investment attributes that sit at the core of our Sustainable Future Process.
Two areas where the biggest advancements in scientific knowledge have huge potential for investors are treating diseases and the energy transition.
Treating disease: There has been a revolution in how we treat disease. An estimated 40% of our diseases are primarily driven by genetics. Fruit flies were the first organism to have their genome sequenced, while the entire human genome was sequenced just three years later.
The cost of sequencing a person’s DNA has since fallen from over $100 million in 2001 to below $500 today. It has become possible to fix some faulty genes and potentially cure patients of diseases, including some cancers and inherited deafness and blindness.
Understanding the genetic component of disease enables us to catch and treat disease early. This has given rise to investment opportunities where you can find companies aligned with this revolution in healthcare.
The energy transition: Global average temperatures have been rising since the industrial revolution. To slow climate change, an increasingly large drag on economic growth, we need to halve emissions every decade. Yet energy efficiency alone can deliver a 40% cut in greenhouse gases, while today we have 90% of the technology required to decarbonise our economy.
We have seen massive reduction in costs of those technologies – especially in renewables. As wind and solar get cheaper, demand increases, driving costs down further. In contrast, the cost of fuel in coal and nuclear outweighs any cost advantages from improvements in technology.
We believe the energy transition will have a material impact on investment returns and that the market underestimates the difference between winners and losers from this long-term trend.
Outlook
The three-way dance between science, society and business should deliver an ever cleaner, healthier and safer world.
The business opportunities are immense – renewable energy, energy efficiency, electrification to name a few.
We are positioned both to deliver strong returns to our clients; and to leave our precious blue planet fit for future generations.
About the presenters
Peter Michaelis - Head of the Liontrust Sustainable Investment team
Peter Michaelis is Head of the Liontrust Sustainable Investment team. Peter joined Liontrust in April 2017 as part of the acquisition of Alliance Trust Investments (ATI), where he was Head of Investment. Peter has been managing money in Sustainable and Responsible Investment for over 20 years. After completing a PhD in Environmental Economics, Peter started his career working for the Steel Construction Institute as an Environmental Engineer. He then moved to Henderson Global Investors where he was able to use his experience as a Sustainable and Responsible Investment Analyst and Assistant Portfolio Manager. In 2001, Peter moved to Aviva Investors, where he was promoted to lead Portfolio Manager on a number of its Sustainable and Responsible Investment funds, before being made Head of Sustainable and Responsible Investment.
Peter holds an MA in Physics from Oxford University, an MSc in Energy and Environmental Engineering from the University of Sussex and a PhD in Environmental Economics from the University of Surrey. In addition, he has the CFA Society of the UK Investment Management Certificate (IMC).
Mike Appleby, Investment Manager
Mike Appleby is an Investment Manager on the Liontrust Sustainable Investment team, with responsibility for the generation and integration of SRI research into the funds and portfolios. Mike joined Liontrust in April 2017 as part of the acquisition of Alliance Trust Investments (ATI). Having started his career in the investment industry in 1992, Mike joined Aviva Investors in 2004 as a Research Analyst. He was a Fund Manager from 2006 to 2010 and was then appointed as Head of SRI Thematic Research. Previously, he attained an MSc in Environmental Management at Imperial College, London. Prior to that, he was an Investment Analyst at TASS Management. Mike started his career on Lehman Brothers’ trading desk and holds a BSc (Hons) in Biological Sciences from the University of Edinburgh and the CFA Society of the UK Investment Management Certificate (IMC).
KEY RISKS
Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.
The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
The Funds managed by the Sustainable Future Team:
Are expected to conform to our social and environmental criteria. May hold overseas investments that may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of a Fund. May hold Bonds. Bonds are affected by changes in interest rates and their value and the income they generate can rise or fall as a result; The creditworthiness of a bond issuer may also affect that bond's value. Bonds that produce a higher level of income usually also carry greater risk as such bond issuers may have difficulty in paying their debts. The value of a bond would be significantly affected if the issuer either refused to pay or was unable to pay. May encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings. Outside of normal conditions, may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash. May be exposed to Counterparty Risk: any derivative contract, including FX hedging, may be at risk if the counterparty fails. May invest in companies listed on the Alternative Investment Market (AIM) which is primarily for emerging or smaller companies. The rules are less demanding than those of the official List of the London Stock Exchange and therefore companies listed on AIM may carry a greater risk than a company with a full listing. May invest in smaller companies and may invest a small proportion (less than 10%) of the Fund in unlisted securities. There may be liquidity constraints in these securities from time to time, i.e. in certain circumstances, the fund may not be able to sell a position for full value or at all in the short term. This may affect performance and could cause the fund to defer or suspend redemptions of its shares.
The risks detailed above are reflective of the full range of Funds managed by the Sustainable Future Team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.
DISCLAIMER
This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.
This should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust.
