One of these factors is the name of the fund. Earlier in the year, FE Trustnet noted that readers seem to ignore articles about funds with ‘ethical’ or sustainable’ in their names, even though a number of top-performing and highly regarded products fall into this category.
An example of this is FE Alpha Manager Mike Fox’s £121.1m CIS Sustainable World fund, which launched in September 2009 with a combination of both investment performance and social responsibility objectives.
The fund resides in the popular and highly competitive IMA Mixed Investment 40%-85% Shares sector, which is also home to big names such as the £2.7bn Newton Balanced, £1.6bn Jupiter Merlin Balanced and £1.1bn Schroder Managed Balanced funds.
Fox believes that sustainable investing should not be ignored by investors. He said: “Sustainable investing offers a repeatable, differentiated investment process which focusses investor capital on higher growth, higher quality investments across a range of geographies and asset classes. It also allows individuals and institutions who believe their capital should be invested in a way which improves society to invest their capital.”
The manager aims to identify companies that make a product which benefits society overall and are currently underappreciated by the market. It invests globally although close to half of the portfolio is held in UK stocks and bonds.
Businesses involved in armament, nuclear-power generation and tobacco are automatically excluded from the fund’s investable universe, while the manager attempts to find companies which are positioned to benefit from long-term themes around sustainable trends.
It also tends to have little exposure to the mining, oil & gas, financial and beverage industries, given its ethical tilt.
Since launch the fund has returned 82.20 per cent, which as the graph below shows compares favourably with the average return of its peer group and makes it the sector’s second high returning fund over this period.
It is benchmarked against the sector, but as a point of comparison we have also shown its outperformance against the FTSE All Share.
Performance of fund vs sector and index since launch
Source: FE Analytics
Looking at annual performance also shows CIS Sustainable World has consistently delivered good numbers. While the fund was sixth decile in 2010 - its first full calendar year - it went on to sit in the sector’s first decile during 2011, 2012, 2013 and over 2014 to date.
On a cumulative basis, FE Analytics shows the fund is ranked first in the sector over one, three and five years as well as over three and six months. Of course, it must be noted that past returns are no guide to future performance.
Fox says the drivers of the longer-term outperformance have been the fund’s exposure to the US, which is close to 40 per cent; an overweight to the global healthcare and technology sectors; and a lack of exposure to commodity sectors like mining and oil & gas, which have had a bad run.
Over 2014 so far, which has been generally sideways markets with bouts of strong volatility, it’s returned 9.59 per cent against the sector’s 3.86 per cent and the FTSE All Share’s gain of just 1.63 per cent. The manager highlights railroad company CSX, technology giant Apple and US homebuilder Pulte as strong performers this year.
Other metrics for the fund also compare favourable with its peers’, even though it is more volatile than the average fund. CIS Sustainable World’s annualised volatility stands at 10.89 per cent over the past five years, some 2 percentage points more than the sector average.
However, its maximum drawdown - which shows the loss of an investor who bought in at the peak and sold at the worst time - is lower than its average peer. Meanwhile, the fund is among the best in its sector when it comes to the number of positive and negative periods, alpha generation and Sharpe ratio.
The fund’s strong track record has won it some recognition. It holds five FE Crowns and has a place in the AFI Aggressive portfolio, which is constructed by a panel of leading financial advisers.
It also appears on the FE Research team’s Select 100 list of preferred funds, where its track record and Fox’s investment skills are highlighted.
The FE Research team notes that the fund’s launch was fortuitously timed, as Fox was able to invest in strong companies that dominated their market at very cheap prices in the immediate aftermath of the global financial crisis.
The team added: “Fox uses an environmental, social and governance approach to select equities across the different products he manages. He not only excludes companies from his investable universe but also tries to identify sustainable themes and the type of business that can profit from them over the long term.”
“This approach, combined with strong stock picking skills, has helped Fox to pick up companies at very low prices and the fund to deliver strong returns.”
The UK is the portfolio’s largest geographical weighting at 46.2 per cent, followed by the US at 39.4 per cent, Switzerland at 6.1 per cent and Germany at 2.5 per cent. In terms of sectors, it has 20.8 per cent in health, 13.4 per cent in technology and 13.2 per cent in consumer goods.
Source: FE Analytics
Despite being in a multi-asset sector CIS Sustainable World tends to focus on equities, which is the manager’s area of expertise. The bond portion of its portfolio used only as a counterbalance to protect investor capital in falling markets and reduce volatility.
FE Research points out that this approach has worked since launch but says performance could be hindered if the equity and bond markets start to move in opposite directions.
CIS Sustainable World has clean ongoing charges of 0.81 per cent.
