It’s not just millennials that are interested in investing sustainably, it’s occurring across age groups and risk profiles, according to Rathbones fund manager Will McIntosh-Whyte.
Rathbones has extended its sustainable portfolio options with a new sustainable risk-adjusted range, called the Rathbone Greenbank Multi-Asset Portfolios (RGMAPs).
The range will be made up of four funds and have a “triple focus”, according McIntosh-Whyte, concentrating on risk, returns and sustainability in equal measure.
He said: “We want to make sure that all three have very clear targets and not to raise one above the other which is very, very important. Sustainability is important but so is achieving a financial returns and meeting investors’ objectives.”
McIntosh-Whyte will run the fund along with fellow Rathbones manager and head of multi-asset investments, David Coombs.
The pair will be supported by Rathbone Greenbank Investments, which is Rathbones’ specialist ethical, sustainable and impact research and investment team.
A driving idea behind the range was proving a sustainable investment option for all risk tolerances and not just an option available to balanced investors, according to McIntosh-Whyte.
When it comes to the funds’ holdings, McIntosh-Whyte said it was important to make the investment process and criteria clear.
“We really don't want our clients to buy this and find that there’s something in there that they didn't expect. That's what we hope to achieve with the clear criteria around it,” he said.
From a sustainability standpoint “everything in the portfolio is designed to benefit people and planet”.
This does make it more complex than a ‘traditional’ multi- or single-asset fund, according to the team, as each asset class requires its own separate negative screening and positive analysis process and requirements.
With this in mind, McIntosh-Whyte highlighted some of the core equity holdings held in all four funds which display these alignments.
Trex
First is US company Trex, which makes decking from recycled timber and plastics.
The company is both one of the main recyclers of plastics in the US and biggest user of this material, according to the manager.
“As market leader in the space, there's a lot of share to go and growing shares. It’s taking shares from wood [companies] as well,” he said.
Alfen
Next the manager highlighted a “not very well known” company based in the Netherlands: Alfen.
It’s more well known for its electric vehicle charging points, but McIntosh-Whyte said the main interest for the Rathbones team is its manufacturing and integrating of smart grid technologies elements.
As better environmental practices are targeted generally, it’s important that renewable energy sources are able to access main power grid systems, according to McIntosh-Whyte, something which Alfen enables.
Tomra
Another core holding is German company Tomra, a popular sustainable-ESG stock which is best known for its reverse vending machines. These are deposit stations where rather than paying for a can of soft drink, for example, empty cans are left for recycling.
McIntosh-Whyte said it was a “fantastic business.”
But there are elements of the company which on the surface may appear to fail typical sustainable investment criteria, namely its links to the tobacco industry.
The sensors used in the recycling vending machines are also used in the tobacco industry’s production lines to help sort of the quality of raw tobacco leaves.
Tobacco is one of the things Rathbone and Greenbank’s sustainability criteria screens against, as any company deriving more than 5 per cent of its revenues from the sale, production of packaging of tobacco would not be included in the funds.
This threshold was not met at Tomra, as its generates less than 2 per cent of its total revenue from this exposure, and there was an overall clear alignment with social and environmental benefits through the overall business.
Kate Elliot, Rathbone Greenbank Investments' deputy head of ethical, sustainable and impact research, explained: “It's that combination of the kind of the low overall exposure, the lack of kind of direct link to the ultimate kind of harm that can cause, meant we felt that company did pass the negative screens for these funds.”
The business is an example of Rathbone and Greenbank’s wider in-depth research during stock picking consideration.
Elliot added: “This is really it's going beyond relying on third-party ratings. We do use MSCI ESG data, but that's very much one tool among many that we will turn to, because we do feel that with any third-party research, it's a tiny part of the story about these organisations.
“So it's a good launching pad. But we feel it's really important that we do fully understand these organisations that we conduct our own in that research into the ourselves.”
Aptiv
A final core equity holding is technology company Aptiv, focusing on the electric vehicle market.
McIntosh-Whyte explained that electric cars required around seven times more electronics then ‘regular’ vehicles. Rather than try and pick which electric car manufacturer is going to “win the race”, the team would rather invest down the supply chain.
While the above examples are all stocks, the Rathbone Greenbank Multi-Asset Portfolios apply separate assessment criteria regarding sustainability for other asset classes.
Government bonds, for example, have four key criteria and the issuing country itself must pass at least three to be considered for the fund. These are: levels of defence spending, climate change policy and actions, civil liberties and political rights, and perceived levels of corruption.
Green bonds are another asset the range can invest in.
The number of green bonds available has increased in recent years as governments have tried to align themselves financially with its environmental pledges. Indeed ‘green gilts’ were launched in the UK last year in an attempt boost the country’s low-carbon commitments and aid the recovery from the pandemic.
While these are an “interesting area”, Elliot said that they wouldn’t necessarily be the default option over traditional government bonds, as the latter can also service and support environmental and social betterment such as healthcare infrastructure or social security.
McIntosh-Whyte added that bonds are a really important part of portfolio construction and when green bonds are available he would like to hold them in the fund but not for “ludicrous valuations”.
He said: “So this isn’t about going down the sustainability route and throwing out risk management, throwing out generating returns, it's about making sure you get the right balance.
“Nothing goes into the portfolio if it doesn't meet the sustainability criteria, but nothing also gets into the portfolio unless it's driving returns or hedging the risk. And I think that’s really important.
“It has to be doing something while having the sustainability criteria and that’s what we mean by that triple focus and making sure we get that balance between the two.”