James Clark, senior fund analyst at Hawksmoor gives insight into the funds Hawksmoor’s Sustainable World are backing
'This is the second instalment of Hawksmoor’s MPS Investment Committee articles. In our first, my colleague, Ian Woolley, explained how our model portfolio service (MPS) has been revamped following the management of the service passing to our discretionary research team. In this second article, I will focus on our Sustainable World model portfolios with some examples of funds we invest in.
Sustainable World is the name given to our sustainable investment portfolios within both our MPS and our bespoke discretionary service. Sustainable World portfolios have been available within our bespoke discretionary service since early 2017 and within our MPS since July 2018, when our first such model was launched.
The revamp has provided the perfect opportunity to expand our range of Sustainable World model portfolios from one to four. At each of our four risk levels – cautious (0-40% equity), moderate (40-60% equity), adventurous (60-80% equity) and equity risk (80-100% equity) – we have a Sustainable World option (alongside our Core and Higher Income options).
In terms of asset allocation, by way of reference, our moderate Sustainable World model portfolio currently has 29% in fixed income, 24% in each of UK equity and international equity, 21% in alternatives
and 2% cash.
The expansion of our range of Sustainable World model portfolios has given us the opportunity to utilise more of our favoured sustainable funds across the risk spectrum. Royal London Ethical Bond is one such example. Managed since 2009 by Eric Holt (pictured), this is a strategic bond fund with a portfolio currently focused on investment grade corporate bonds, but also including sub-investment grade and unrated bonds (where Royal London’s credit research team make their own assessment).
The manager believes that secured bonds (issues backed by an asset such as property, for example) are undervalued, so these form a substantial portion of the portfolio. Holt also believes that delivering an attractive yield on the fund (currently 3.6%) is very important, as is managing downside risks by ensuring that the portfolio is very well diversified.
A robust negative screening process covers five criteria, followed by positive screening using a further three criteria. With a very strong performance record, Royal London Ethical Bond is among our top picks of sustainable fixed income funds.
Troy Trojan Ethical Income also features across our range of Sustainable World model portfolios. This fund is derived from the successful Troy Trojan Income fund managed by Francis Brooke and assisted by Hugo Ure, with the latter taking on the management of the Ethical fund.
This was launched in January 2016 in response to demand from the Duchy of Cornwall, which held £5 million worth of the ‘main’ fund at the time and which helped to develop the negative screening criteria for the Ethical fund.
Troy Trojan Ethical Income has a predominantly UK equity income (at least 60%) portfolio that can also include overseas equity and cash, managed in Troy’s typical low volatility, long-term style. The manager has always aimed to provide a yield in excess of 3% (currently 3.2%) from a relatively concentrated portfolio of 35-50 holdings. The result is a differentiated, sustainable equity income fund, which held up very well in the tumultuous markets of the latter part of 2018.
The above two examples fit within our exclusion categorisation of sustainable funds – those which exclude investment in companies whose products or services are damaging to the environment and/or society. Funds from our integration (those which include investment in companies demonstrating positive characteristics) and impact (those which actively seek to invest in companies making a positive impact on the environment and/or society) categories also feature prominently across our range of Sustainable World model portfolios.
This framework for different varieties of sustainable funds is supported by our proprietary fund research process, including regular meetings and conference calls with managers with whom we invest with.'