REWARDS:
■ Core exposure to UK-based socially responsible companies
■ Well priced
■ Long-term outperformance
RISKS:
■ Does not invest in commodities space
■ Key man risk
As National Ethical Investment Week draws to a close, and the world gears up for the much anticipated Copenhagen Summit in December, climate change is expected to continue as one of the dominant political and investment themes.
And putting money into the low-carbon economy may still make sense, because unlike most sectors which have returned to high valuations as the market rallied, environmental funds have remained largely in the doldrums. However, none of the underlying investment themes, such as the unsustainable pressures on resources, climate change and the various government stimulus packages pushing a 'green agenda', has gone away.
So if you want to make money and make a difference, the CIS Sustainable Leaders Trust managed by Mike Fox, might be the fund for you. It's a solid UK equity fund, offering what Mick Gilligan of stockbroker Killik & Co terms "a commonsense investment approach".
Morningstar analysts agree, having recently awarded the fund a 'superior' rating, reserved for above -average funds capable of producing peer-beating returns.
"After undergoing a number of changes in 2005, this fund is now not only a strong socially responsible fund, but it is also a solid contender in the wider UK equity space," says Tom Whitelaw, Morningstar analyst.
Launched in 1998 as a traditional ethical fund, the CIS Sustainable Leaders Trust broadened its remit when Mr Fox took the reins in late 2003. Believing that the fund had become "overly moralistic and less relevant", he introduced sustainable businesses into the fund which increased the investment universe considerably - from 30 per cent of the FTSE All-Share to 50 per cent.
"While investors with strict ethical beliefs would not have liked this change, it has given Fox a better chance of competing with less constrained UK equity funds and helped it become more adaptive to various market cycles - to some extent this has lowered volatility," comments Mr Whitelaw.
Part of the Co-operative Group, the fund, a unit trust, is run with a bottom-up, valuation-driven process which has a thematic overlay. But, while Mr Fox looks for mispriced opportunities, he is not a contrarian investor, instead choosing stocks with longer-term growth prospects.
The FTSE All-Share Index is Mr Fox's starting point, from where he whittles holdings down by choosing companies that will benefit from themes such as urban regeneration or climate change, while also looking at cash-based valuations and making sure investments meet the fund's socially responsible investing (SRI) criteria.
While the fund's performance over longer periods is impressive (top quartile over three- and five-year periods), the strict SRI criteria does result in some erratic returns at times. Mr Whitelaw also emphasises that this fund will not be suitable for all: "The fund will not invest in the commodities space, which results in marked differences in terms of portfolio construction and, ultimately, performance."
Another major concern for analysts is key man risk. Mr Fox, together with Paul Sharman, who was appointed as chief investment officer of the group in 2005, have been instrumental in making the fund and the group in general work. "If Fox in particular were to leave, the group's location in Manchester could make it difficult to recruit a high-quality replacement," says Mr Whitelaw. However, he adds that the team as a whole is strong and the fund remains a compelling investment.
Key fund data:
CIS SUSTAINABLE LEADERS TRUST INC | |||
---|---|---|---|
PRICE | 264.20p | SHARPE RATIO | 0.07 |
SIZE OF FUND | £233.65m | 1 YR PERFORMANCE | 12.73% |
No OF HOLDINGS | 40* | 3 YR PERFORMANCE | -9.55% |
SET UP DATE | 29-May-1998 | 5 YR PERFORMANCE | 43.31% |
MANAGER START DATE | 02-Nov-03 | TOTAL EXPENSE RATIO | 1.53%* |
BETA | 0.6 | YIELD | 1.7 |
VOLATILITY | 2.61 | MINIMUM INVESTMENT | £1000 initial, £500 thereafter |
TRACKING ERROR | 2.09 | MORE DETAILS | www.co-operativeinvestments.co.uk |
Source: Co-operative Investments, www.ft.com/funds, Morningstar*
Notes: Performance as at 9 November 2009
Top 10 holdings as of 30/09/09
Holding | Percentage |
---|---|
HSBC Holdings Plc | 7.80% |
Smiths Group Plc | 4.83% |
Scottish & Southern Energy | 4.82% |
Spice Plc | 4.30% |
RPS Group Plc | 4.29% |
Rotork Plc | 4.27% |
GlaxoSmithKline | 4.23% |
Standard Chartered Plc | 4.01% |
International Power Plc | 3.89% |
Smith & Nephew Plc | 3.77% |
Sector breakdown
Sector | Percentage |
---|---|
Industrials | 31.18% |
Financials | 21.43% |
Utilities | 14.73% |
Healthcare | 10.05% |
Consumer Services | 9.92% |
Basic Materials | 4.37% |
Consumer Goods | 4.01% |
Telecommunications | 2.58% |
Other | 1.73% |