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Rathbones launches sustainable multi-asset fund range offering a wide choice of risk and return

“What we wanted to do is enable clients to achieve their financial objectives without compromising their values,” says fund manager Will Mcintosh-Whyte

Rathbones may not be the most well-known investment manager in the UK, but its funds are among some of the industry’s best kept secrets.

Ethical and sustainable investment is one such area, where its Rathbone Greenbank division is a pioneer in the space. It has been providing bespoke ethical, sustainable and impact investing portfolios to individuals, private clients, charities and trusts for more than 20 years.

Within the wider group, Greenbank has been working closely with the Rathbones unit trust team to screen potential investments for several mandates over the years, including the Ethical Bond fund since its launch almost 20 years ago and the Global Sustainability Fund launched three years ago.

Drawing upon this expertise, Rathbones has this month launched a quartet of sustainable, risk-rated, multi-asset funds.

The range will be run by fund manager Will McIntosh-Whyte and David Coombs, head of multi-asset investments, the team that also runs Rathbones’ existing multi-asset fund range.

“What we wanted to do is enable clients to achieve their financial objectives without compromising their values,” says Mcintosh-Whyte

“We already have a collaboration with Greenbank on a couple of our bond and equity unit trust funds, so launching a sustainable multi-asset fund felt like a logical next step.”

As multi-asset funds, the underlying securities held by each fund will be made up of a mix of shares and bonds from around the world, plus structured products and derivatives.

Each of the four risk-rated funds offers a different targeted level of return and risk. Starting at the lowest-risk end, the Rathbone Greenbank Total Return fund is looking to deliver cash plus 2%, with a ‘risk budget’ of one-third of the volatility of global equities.

The rest of the range will offer incrementally higher return for incrementally higher risk: the Rathbone Greenbank Defensive Growth fund is targeting a return of inflation (UK CPI) plus 2% for half of the volatility of equities; the Rathbone Greenbank Strategic Growth fund is targeting a return of inflation plus 3% for two-thirds equity risk; and the Greenbank Dynamic Growth fund is targeting a return of inflation plus 4% for five-sixths equity risk.

As McIntosh-Whyte explains, shares in quality companies and corporate bonds held in the portfolios will essentially be the drivers of returns, with a focus on quality companies with strong balance sheets and cash flow, and developed market government bonds providing liquidity and structured products such as put-options acting as ‘insurance’, especially in the lower-risk funds.

An important part of the structure of each of the portfolios is making sure they don’t fall too much during times of market stress, he adds.

“By categorising assets correctly, we think we can help mitigate drawdowns in the fund. Say there’s a really nasty risk-off market, and your portfolio consists of just corporate bonds and equities, you could find all of your assets are falling at the same time, as it’s not genuinely diversified. So clients could see falls in their portfolio, certainly more than they expected.” 

But in order to make it into the funds, all equities or bonds must pass muster in Greenbank’s screening process.

A perfect example of this is the only government bonds in the portfolios at launch are those issued by the UK and Japan, with US treasuries excluded because they don’t meet the sustainability criteria.

“We have an ultimate veto over organisations where the investment doesn’t meet the sustainability criteria,” says Kate Elliot, deputy head of ethical, sustainable and impact research.

“From a sustainability screening point of view the funds have got a very strict set of criteria that apply across all the asset classes within those portfolios,” Elliot adds.

“Our first step is to look at avoiding organisations that are causing harm. And then it’s about identifying organisations that are benefiting people and the planet.”

This means, first there are strict criteria for avoiding companies or sovereign bond issuers that are causing material harm, which includes companies involved in arms, tobacco and oil & gas, with the screening process also excluding those involved in other harmful actions such as human rights controversies or serious pollution incidents.

A major point of difference compared with other fund offerings with an environmental, social and governance (ESG) focus is that Greenbank’s process also looks for positive effects that are being made, says Elliot.

“Anything that gets past that initial gateway then needs to demonstrate that it’s aligned with sustainable development and having a positive benefit on the planet,” she says. 

The positive overlay uses eight themes that link back to the UN Sustainable Development Goals, and focus on the areas with most relevance for companies and investors: habitats and ecosystems, resource efficiency, decent work, inclusive economies, energy and climate, health and wellbeing, resilient institutions and innovations and infrastructure.

Examples of companies that have made it through both negative and positive filters include GlaxoSmithKline, as a leader in helping access to medicine and developing medicines for WHO priority diseases; Alfen, a Netherlands-based developer of smart grid technology; Tomra, a Norwegian maker of ‘reverse vending machines’ that promote recycling; and SIG Combibloc, Switzerland’s rival to Tetra Pak.

As well as being a member of the influential Climate Action 100+ initiative, which has worked with companies like BP and Shell to form targets for decarbonisation, Greenbank’s experience in ESG and sustainability issues means they can go beyond the simple box-ticking approach to really get under the bonnet of companies and look behind the tricks of the trade that some companies might use to appear sustainable.

“It’s important to weed out those that are just talking the talk rather than walking the walk. I think having Greenbank’s knowledge and expertise really enables us to do that,” says McIntosh-Whyte.

Read More: Rathbones launches sustainable multi-asset fund range offering a wide choice of risk and return

2021-03-28 23:00:00

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