Last Word
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The Royal London Sustainable World Trust celebrated its 10th anniversary in September this year. The fund, which is one of five offerings in Royal London Asset Management’s range of sustainably invested portfolios, invests in equities and bonds and sits in the IA Mixed Investment 40-85% Shares sector.
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LOCATION_ London
Living up to ESG claims
A_
“The range has ESG considerations firmly embedded into its investment process and the team only manages funds which invest in companies that help solve environmental and social challenges and do a better than average job at managing their ESG risk.”
YEARS IN INDUSTRY_ 18
To view Square Mile Investment Consulting and Research Ltd's disclosure on their involvement on this site, please click here.
JOB TITLE_ Head of risk-based solutions research
The Royal London Asset Management team manages fund which invest in companies that help solve environmental and social challenges and do a better than average job at managing their ESG risk.
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COMPANY_ Square Mile Investment
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ALEX FARLOW
Last Word
Perspective
Put off by the notion that investing ethically comes with the caveat of average investment performance, the market share of responsibly invested funds has remained static for well over a decade.
However, as the Royal London Sustainable World Trust readies itself to be 10 years old in September, its track record of first quartile performance over nearly all time periods proves that oil and water can mix.
Launching its first sustainably invested fund, Sustainable Leaders, back in 1990, Royal London Asset Management (RLAM) boasts an impressive track record. However, Mike Fox, head of sustainable investments at the group, says it is in the last two years in which demand for the asset has really surged.
“I started managing sustainable mandates at RLAM in November 2003 and there has been a huge change in investor attitude since then,” he says. “When I first started talking about sustainable investing, the question was very much why would you?
“There was a perception that investment returns would be negatively impacted by it, while it was a style of investing which was not relevant for a broad swathe of people. Today the question has very much moved on to why wouldn’t you invest sustainably?”
The reason for this sea-change in attitude is two-fold, says Fox. First, investment performance in sustainable funds has been demonstrably good, while second the acceptance of sustainability as a broad social concept has grown.
“There has been an awakening and realisation that sustainability and finance are not oil and water,” he says. “They do actually mix and if you can get them to mix in the right way, what you end up with is something which is significantly better.”
He says: “Some 10 years ago sustainable investing could be seen as looking at small and medium-sized companies that might have a specific item that had some benefit to it. Today, the modern manifestation of sustainable investing is very much understanding the large societal and environmental themes and investing behind them.”
Given this rise in opportunities, and the surge in demand from investors, it is little surprise that the past two years have seen many new funds launched. It is here that Fox says RLAM’s track record stands it out from its peers.
“As a team we have managed a consistent philosophy and investment process since 2003,” he says. “This means we have an unbroken track record across market, economic and social cycles, which is very valuable and gives us a 15-year head-start on many of our competitors.”
Two of the largest themes driving stock selection in the fund are electrification and digitisation. These themes span a number of industries from energy transition and electric vehicles to artificial intelligence and next generation health care.
“The majority of investors still don’t understand the difference between ethical and sustainable investing,” he says. “Ethical investing is about negative screening and avoidance, whereas sustainable investing is about positive screening and inclusion.
“The way we describe it is we are getting two shots at goal. Most fund managers just get one shot through financial analysis, whereas we do the financial analysis but then get another shot with our ESG analysis. It is a whole raft of information that most managers are not using and over the years this has been a huge advantage to us.”
How oil and water can mix
AUTHOR_ ADAM LEWIS
To demonstrate this awakening, in 2013 RLAM managed about £800m in all of its sustainable strategies. Today this figure stands at £2.9bn, of which Fox says some £1.2bn has come through the door in the last two-to-three years.
These assets are split between five funds in the RLAM sustainable range, which vary between being 100% invested in equities to 100% in fixed income. Sitting in the IA Mixed Investment 40-85% Shares sector is the £856m Sustainable World Trust, which launched in September 2009.
“One of the things that differentiates us from many funds in this area is that we work seamlessly between equity and debt,” says Fox. “This is beneficial for two reasons. Firstly, when we make investment decisions, we can look at a company or industry and decide whether to invest in the equity or debt, with some industries and companies being suitable for one and not the other.
“Secondly, from a product perspective, it allows us to sell these as both single funds or suite of funds like an outsourcing solution. So, reflecting its higher risk approach the World Trust is 80% equity and 20% debt, while the Diversified fund, which was 10 years old in July, is 60% equity and 40% fixed income.”
In terms of investments, Fox says both in his 10 years running the World Trust and his investment career overall, there have never been more opportunities for an active approach as there are today.
Kames Global Diversified Income Fund
Fund
Vincent McEntegart has been managing the Kames Global Diversified Income Fund for six years and is well-versed to the changeable financial climate. Curabitur blandit tempus porttitor. Aenean lacinia bibendum nulla sed consectetur.
Manager
Vincent McEntegart
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The team has a common internal standard for its research. However, its members accept that a lot of their judgements are subjective. This is why they work with an external advisory committee which provides oversight and advice on the process. We believe that this element of external challenge and governance is a strong factor in the process.
The team’s process and research means that its universe of equities and bonds only includes those securities with a low level of ESG risk. Over the last 5 years this has translated itself into portfolios which have generally exhibited a lower level of drawdown than their peers. The team then selects those it believes have the best investment potential over the medium term and construct portfolios which can provide investors with good risk adjusted returns. Importantly, whilst they seek companies with good practices, a company also needs to have the potential to provide a good return on capital. The team firmly believes that it can add value as a consequence of its process and not that it limits the funds’ potential returns. The product range, which consists of funds with a differing mix of equity and bond, means there is a high commonality in the management of each. This allows the opportunity to select from a range of funds, with each meeting a different client risk appetite.
The team recognises that its main strength is its process and its output, which helps it identify sustainably strong and fundamentally sound business and therefore it tends not to spend a significant amount of time thinking about the broader allocation and more specifically the amount held in equities and bonds. As a result, the funds tend to be managed fairly closely to their benchmark allocations.
AUTHOR_ ALEX FARLOW
"The range has ESG considerations firmly embedded into its investment process and the team only manages funds which invest in companies that help solve environmental and social challenges and do a better than average job at managing their ESG risk."
The team understands that investing sustainably is subjective and will mean different things to each investor. They also understand that views and an investor’s ethical considerations can change over time and this is why the team keeps its approach fluid and adaptable. The team’s members embrace the subjective nature of this approach to investing and adapt to the times. In fact, the success of the funds has partly been down to their adaptability. The fund’s approach, by traditional methods, would be considered as lighter green than many others in the market. However, it should be stressed that there remains a high hurdle rate for inclusion. Should a business experience problems with its ESG credentials then this would be assessed in a similar way to financial concerns around a company and an assessment would be made, rather than it automatically being removed from the portfolios.
The team makes use of third-party research and ratings on a business’s sustainable characteristics but they use this as a starting point for its own proprietary research and not as the ultimate arbiter for inclusion. We believe that this is a sensible approach to have, as utilising existing information takes some of the heavy lifting out of the research process and affords more time to undertake fundamental analysis. This could involve looking into companies which may ordinarily be excluded from more mainstream ESG focused funds and where a simple tick box approach misrepresents its corporate DNA. Alternatively, it could be reviewing a company where the direction of travel on certain issues is strongly positive and there is the possibility for inclusion in the near future.
Many investment groups claim to have environmental, social and governance (ESG) considerations integrated within their research processes, however the Sustainable Investment (SI) team at RLAM truly lives up to that claim. The SI team is headed by Mike Fox, who is a longstanding proponent of sustainable investing. The team only manages funds which invest in companies that help solve environmental and social challenges and do a better than average job at managing their ESG risk. This team works very closely with RLAM’s Responsible Investment team that oversees research into and engagement on ESG for the group.
Engrained in the team’s process is the belief that the sustainability of a business will drive the financials, providing that the business is fundamentally sound. Unlike many older SRI and ethical funds, the investment process is based more around positive screening than negative exclusions, although there are a number of hurdles for a business to get over before positive characteristics are assessed. Stocks in the portfolio generally have a positive benefit on society in some way and, unlike many other ethical funds, the portfolio will hold a number of larger businesses which are leaders in their field. This is based on the premise that larger companies are better placed to influence change. At first glance it might not seem obvious why a security is being held in the portfolio and therefore investors may need to work a bit harder to understand why a company is included. Though we think that most investors who are serious about investing in a sustainable way will be willing to do so.
A sustainable investment range to meet different investor needs
Diane Earnshaw, head of consultancy, Square Mile
Square Mile
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Jonathan Woo_ investment research_ Santander Asset Management
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“There has been considerable structural reform in giant markets like India, China and the Pacific Tiger economies. It’s a time of change from investment in infrastructure to innovation. Baillie Gifford looks for superior growth, meaning its style is suited to this change. They make some debatable valuations but are valiant investors and can spot businesses with great fundamentals early. They are picking the sort of businesses that have the potential to steam ahead and accrue multiple years of earnings growth for investors.”
Scott Spencer_ Investment Manager_ F&C Multi-manager solutions, BMO Global Asset Management
“The key rationale behind Income Maximiser is the delivery of a 7% yield. The use of derivatives in the portfolio means the upside is therefore limited but we find the fund is a lower beta way of getting equity exposure as well as some downside protection.”
“The fund managers of Schroder Income [Nick Kirrage and Kevin Murphy] pick the stocks, and the derivatives for Income Maximiser are then written accordingly. We like the fact that derivatives provide a diversification element and we have a great deal of confidence that the derivatives are run by a separate team. It is a very different skill set and is a USP of theirs.”
Richard Philbin_ CIO_ Wellian Investment Solutions
Mona Shah_ head of collectives_ Rathbones
“After years of lacklustre performance, Asia and the emerging world experienced a resurgence last year, driven by rising commodity prices and a fundamental shift in favour of more cyclical sectors like financials, energy and materials. But many of the fortunes of Asia and emerging markets are driven by sentiment from the West, which was negatively affected by the US election in November. While markets have regained their initial losses, we’ve had no more clarity on what Donald Trump’s policies will mean with regards to global trade and protectionism. For this reason, we believe that diversification should offer benefits in a period where markets are likely to be volatile. In addition, the economies in Asia-Pacific are showing increasing dependence on domestic demand, and we believe funds exposed to growing demand from consumers in China, for example, may be better placed to withstand headwinds from the US.”
Robert Shepherd_ Director_ Bright & Co.
We were on the lookout for something different and, let’s face it, 4% or lower is the norm in this environment. So this is attractive”
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Achievable, sustainable, reliable
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Fund
Manager
Perspective
Fund Buyer
Perspective
This demo version has been optimised for desktop, laptop and tablet. Smartphones, iPhones will be supported in the next version.
to bring you insight, research and market views
directly from the fund manager.
together with an explanation of the strategy
Axis analyses the fund from four perspectives
Royal London
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He says: “Some 10 years ago sustainable investing could be seen as looking at small and medium-sized companies that might have a specific item that had some benefit to it. Today, the modern manifestation of sustainable investing is very much understanding the large societal and environmental themes and investing behind them.”
Given this rise in opportunities, and the surge in demand from investors, it is little surprise that the past two years have seen many new funds launched. It is here that Fox says RLAM’s track record stands it out from its peers.
“As a team we have managed a consistent philosophy and investment process since 2003,” he says. “This means we have an unbroken track record across market, economic and social cycles, which is very valuable and gives us a 15-year head-start on many of our competitors.”
Two of the largest themes driving stock selection in the fund are electrification and digitisation. These themes span a number of industries from energy transition and electric vehicles to artificial intelligence and next generation health care.
“The majority of investors still don’t understand the difference between ethical and sustainable investing,” he says. “Ethical investing is about negative screening and avoidance, whereas sustainable investing is about positive screening and inclusion.
“The way we describe it is we are getting two shots at goal. Most fund managers just get one shot through financial analysis, whereas we do the financial analysis but then get another shot with our ESG analysis. It is a whole raft of information that most managers are not using and over the years this has been a huge advantage to us.”
To demonstrate this awakening, in 2013 RLAM managed about £800m in all of its sustainable strategies. Today this figure stands at £2.9bn, of which Fox says some £1.2bn has come through the door in the last two-to-three years.
These assets are split between five funds in the RLAM sustainable range, which vary between being 100% invested in equities to 100% in fixed income. Sitting in the IA Mixed Investment 40-85% Shares sector is the £856m Sustainable World Trust, which launched in September 2009.
“One of the things that differentiates us from many funds in this area is that we work seamlessly between equity and debt,” says Fox. “This is beneficial for two reasons. Firstly, when we make investment decisions, we can look at a company or industry and decide whether to invest in the equity or debt, with some industries and companies being suitable for one and not the other.
“Secondly, from a product perspective, it allows us to sell these as both single funds or suite of funds like an outsourcing solution. So, reflecting its higher risk approach the World Trust is 80% equity and 20% debt, while the Diversified fund, which was 10 years old in July, is 60% equity and 40% fixed income.”
In terms of investments, Fox says both in his 10 years running the World Trust and his investment career overall, there have never been more opportunities for an active approach as there are today.
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Head of sustainable investing at RLAM
Fox has managed RL Sustainable Leaders Trust since November 2003, Sustainable World since launch and Sustainable Diversified since February 2014. Prior to this, he was deputy fund manager on the Co-operative Pension Fund for two years, before which he worked as an investment analyst.
Mike Fox
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The Royal London Asset Management team manages fund which invest in companies that help solve environmental and social challenges and do a better than average job at managing their ESG risk.Scroll down to read more...
JOB TITLE_ Head of risk-based
solutions research
"The range has ESG considerations firmly embedded into its investment process and the team only manages funds which invest in companies that help solve environmental and social challenges and do a better than average job at managing their ESG risk."
The team understands that investing sustainably is subjective and will mean different things to each investor. They also understand that views and an investor’s ethical considerations can change over time and this is why the team keeps its approach fluid and adaptable. The team’s members embrace the subjective nature of this approach to investing and adapt to the times. In fact, the success of the funds has partly been down to their adaptability. The fund’s approach, by traditional methods, would be considered as lighter green than many others in the market. However, it should be stressed that there remains a high hurdle rate for inclusion. Should a business experience problems with its ESG credentials then this would be assessed in a similar way to financial concerns around a company and an assessment would be made, rather than it automatically being removed from the portfolios.
The team makes use of third-party research and ratings on a business’s sustainable characteristics but they use this as a starting point for its own proprietary research and not as the ultimate arbiter for inclusion. We believe that this is a sensible approach to have, as utilising existing information takes some of the heavy lifting out of the research process and affords more time to undertake fundamental analysis. This could involve looking into companies which may ordinarily be excluded from more mainstream ESG focused funds and where a simple tick box approach misrepresents its corporate DNA. Alternatively, it could be reviewing a company where the direction of travel on certain issues is strongly positive and there is the possibility for inclusion in the near future.
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Subtitle of introduction panel
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to bring you incisive analysis, research and
Fund Manager’s own investment strategy.
Axis interrogates the fund from four perspectives
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Put off by the notion that investing ethically comes with the caveat of average investment performance, the market share of responsibly invested funds has remained static for well over a decade.
However, as the Royal London Sustainable World Trust readies itself to be 10 years old in September, its track record of first quartile performance over nearly all time periods proves that oil and water can mix.
Launching its first sustainably invested fund, Sustainable Leaders, back in 1990, Royal London Asset Management (RLAM) boasts an impressive track record. However, Mike Fox, head of sustainable investments at the group, says it is in the last two years in which demand for the asset has really surged.
“I started managing sustainable mandates at RLAM in November 2003 and there has been a huge change in investor attitude since then,” he says. “When I first started talking about sustainable investing, the question was very much why would you?
“There was a perception that investment returns would be negatively impacted by it, while it was a style of investing which was not relevant for a broad swathe of people. Today the question has very much moved on to why wouldn’t you invest sustainably?”
The reason for this sea-change in attitude is two-fold, says Fox. First, investment performance in sustainable funds has been demonstrably good, while second the acceptance of sustainability as a broad social concept has grown.
“There has been an awakening and realisation that sustainability and finance are not oil and water,” he says. “They do actually mix and if you can get them to mix in the right way, what you end up with is something which is significantly better.”
2014. Prior to this, he was deputy fund manager on the Co-operative Pension Fund for two years, before which he worked as an investment analyst.
Fox has managed RL Sustainable Leaders Trust since November 2003, Sustainable World since launch and Sustainable Diversified since February
The Royal London Asset Management team manages fund which invest in companies that help solve environmental and social challenges and do a better than average job at managing their ESG risk. Disclaimer »
Many investment groups claim to have environmental, social and governance (ESG) considerations integrated within their research processes, however the Sustainable Investment (SI) team at RLAM truly lives up to that claim. The SI team is headed by Mike Fox, who is a longstanding proponent of sustainable investing. The team only manages funds which invest in companies that help solve environmental and social challenges and do a better than average job at managing their ESG risk. This team works very closely with RLAM’s Responsible Investment team that oversees research into and engagement on ESG for the group.
Engrained in the team’s process is the belief that the sustainability of a business will drive the financials, providing that the business is fundamentally sound. Unlike many older SRI and ethical funds, the investment process is based more around positive screening than negative exclusions, although there are a number of hurdles for a business to get over before positive characteristics are assessed. Stocks in the portfolio generally have a positive benefit on society in some way and, unlike many other ethical funds, the portfolio will hold a number of larger businesses which are leaders in their field. This is based on the premise that larger companies are better placed to influence change. At first glance it might not seem obvious why a security is being held in the portfolio and therefore investors may need to work a bit harder to understand why a company is included. Though we think that most investors who are serious about investing in a sustainable way will be willing to do so.
“Royal London Sustainable World (Trust) is a solid choice for investors looking for higher capital growth mainly from global equities, but also some exposure to bonds, using a sustainability approach that has been employed in a disciplined manner. Unlike other options in the range that have a UK leaning, the fund is more global in its approach with at least 50% in overseas equities. The strategy is managed by an experienced manager and one of the most established sustainable investment teams.”
Rajesh Yadav_ senior analyst_ Morningstar
Jake Moeller_ head of Lipper UK & Ireland research_ Refinitiv
“Refuting the notion that SRI/ ESG funds are in some way “sub-optimal”, this positively screened and concentrated fund has an admirable track record. Over three and five year periods (to 30 June 2019) the fund has a top score of 5 in the Lipper Leaders Preservation category and 5 for both total return and consistent return over the same periods. Mike Fox has been prepared to push the limits of the overseas equity component in this fund and structural biases have often provided favourable tailwinds particularly when the oil price has fallen. The switch a few years ago to a more positive engagement approach really fits into today’s narrative for ESG aficionados and is to be commended.”
Darius McDermott_ managing director_ Chelsea Financial Services
“This fund sits in the IA Mixed Investments 40-85% Shares sector and will always be at the upper range for equities as the team believe this is the asset class that will outperform over the long term. So it's important to understand it's not really a multi-asset fund. It is run by Mike Fox and his team, who define 'sustainable' using two categories. The first is: do the products or services the company provides help transition us to a cleaner, healthier, safer and more inclusive society? The second is: does the company exhibit good ESG leadership traits? They then add financial criteria to the mix and score each stock out of 100. We really like this fund – and the others in their range.”
and market views together
Axis analyses the fund
strategy directly from the
from four perspectives to
bring you insight, research
fund manager.
with an explanation of the
JOB TITLE_ Head of risk-based
solutions research
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Jake Moeller_ head of Lipper UK & Ireland research_ Refinitiv
“Refuting the notion that SRI/ ESG funds are in some way “sub-optimal”, this positively screened and concentrated fund has an admirable track record. Over three and five year periods (to 30 June 2019) the fund has a top score of 5 in the Lipper Leaders Preservation category and 5 for both total return and consistent return over the same periods. Mike Fox has been prepared to push the limits of the overseas equity component in this fund and structural biases have often provided favourable tailwinds particularly when the oil price has fallen. The switch a few years ago to a more positive engagement approach really fits into today’s narrative for ESG aficionados and is to be commended.”
“The UK equity portfolio is based on the Chris White-managed Premier Income Fund that is currently expected to generate a yield of 4% to 4.5%.”
G
Review By Gary Corcoran
COMPANY_ Last Word
Chris White and Geoff Kirk joined forces in October 2017 to co-manage the Premier Optimum Income Fund. As the new fund managers, they have made changes to the way the UK equity portfolio and covered call strategy is managed, introducing an explicit target yield of 7% p.a.
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at Last Word
YEARS IN INDUSTRY_ 25+
JOB TITLE_ Director
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GARY CORCO_
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GARY CORCORA_
GARY CORCORAN_
GARY CORCORAN
“Fox says there have never been more opportunities for an active approach as there are today.”
Review By Adam Lewis
With 80% of its portfolio held in global equites, The Royal London Sustainable World Trust is aimed at those investors prepared to take more risk in their hunt for returns from a sustainably-invested portfolio.
Scroll down to read more...
YEARS IN INDUSTRY_ 17
JOB TITLE_ Investment Writer
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ADAM LEWIS
With 80% of its portfolio held in global equites, The Royal London Sustainable World Trust is aimed at those investors prepared to take more risk in their hunt for returns from a sustainably-invested portfolio.
Review By Adam Lewis at Last Word
Review By Adam Lewis
at Last Word
Over the last 12 months RLAM has had 168 engagement interactions with 123 companies
(as at 31/12/18)
Launch date
Fund size
(as at 01/08/19)
holdings – split between equities and bonds (circa 40 are equities with the remainder bonds)
the number of funds in the RLAM Sustainable range
Royal London Sustainable World Trust
When RLAM launched its first sustainable fund – Sustainable Leaders
£
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2
3
4
5
6
7
8
9
0
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HSBC Global Strategy Cautious
Aug ‘17
12
Feb ‘18
-4
Nov ‘17
Feb ‘19
Nov ‘18
HSBC Global Strategy Balanced
HSBC Global Strategy Adventurous
HSBC Global Strategy Conservative
HSBC Global Strategy Dynamic
IA Volatility Managed
Aug ‘18
May ‘18
Data from xxxx - xxxx
Performance vs Peer Group
Source: FE Analytics
Chris Metcalfe_ managing director_ Iboss
“Many multi asset fund selectors balk at the prospect of including a multi asset fund as part of their own multi asset portfolio. However, we have always felt that another approach to asset allocation can provide a dynamic counterpoint to our own biases. This is the case for our holding in the Royal London Sustainable World Trust. The funds’ performance track record speaks for itself and it has contributed a healthy amount to the performance of our own ethical portfolio. However, it is important to be aware that the fund has a clear bias toward growth stocks and many areas of the global equity market that have performed exceptionally well over the last decade. In periods when these momentum trends shift i.e. the fourth quarter of 2018, the fund could struggle.”
"Many multi asset fund selectors balk at the prospect of including a multi asset fund as part of their own multi asset portfolio. However, we have always felt that another approach to asset allocation can provide a dynamic counterpoint to our own biases. This is the case for our holding in the Royal London Sustainable World Trust. The funds’ performance track record speaks for itself and it has contributed a healthy amount to the performance of our own ethical portfolio. However, it is important to be aware that the fund has a clear bias toward growth stocks and many areas of the global equity market that have performed exceptionally well over the last decade. In periods when these momentum trends shift i.e. the fourth quarter of 2018, the fund could struggle."
Data from 21 Sep '09 - 01 Aug '19
Performance versus sector
100
200
250
IA Mixed Investment 40-85% Shares
150
Sep ‘18
Sep ‘16
Sep ‘09
Sep ‘10
Sep ‘12
50
Sep ‘17
Sep ‘13
Sep ‘15
-50
Sep ‘14
Sep ‘11
Drawdown versus peers
Source: FE Analytics
Data as at 31 July ‘19
-4.83
-5.19
-10
-11.56
-20
-11.11
Sector: UT Mixed Investment
20 60% Shares
-11.39
-7.96
-6.56
-8.97
Sector: UT Mixed Investment
40 85% Shares
Sector: UT Sterling
Corporate Bond
Royal London Sustainable
Diversified Trust
Royal London Sustainable
World Trust
-5.43
Royal London Sustainable
Leaders Trust
Max drawdown
Sector: UT UK
All Companies
Royal London Sustainable
Managed Growth Trust
Sector: UT Mixed Investment
0 35% Shares
-16.84
Royal London Sustainable
Managed Income Trust
-15
-5