M&G has launched a global equity fund focusing on ‘impact investing’ – the latest iteration of stockpicking where the manager uses non-financial metrics or principles to select investments.
The M&G Positive Impact Fund (GB00BG886877) will invest in companies that aim to address social and environmental issues – decided by following the United Nations Sustainable Development Goals (SDGs). These are targets that aim to end poverty, protect the planet and create peace and prosperity.
The fund will aim to provide growth and income higher than the MSCI All Country World index over a five-year period net of its ongoing charge, which is expected to be 1.17 per cent. The managers, John William Olsen and Ben Constable Maxwell, said that stocks would be chosen based on the general investment case, the company’s intentions and how big an impact they have on invoking change.
Impact investing differs from better-known principles-based strategies such as ethical equity funds or those focused on environmental, societal and governance (ESG) screens. These tend to be more focused on excluding companies or sectors that do not meet certain criteria, whereas impact investing focuses on companies or projects that are meaningfully changing things. The latter is growing in popularity following the success of ESG and ethical screening funds, with Liontrust’s Sustainable Future fund range and the Hermes Impact Opportunities Equity Fund (IE00BD3FNV41) other well-known options.
Ryan Hughes, head of active portfolios at platform AJ Bell, said impact investing was becoming the latest ‘buzzword’ used by fund firms, which are hoping to convince investors of its merits.
“The hope will be that this more positive approach will capture the imagination of private investors, but it is very early to assess the popularity of this. ESG is still a term that is barely understood and therefore giving them another type of investing to think about runs the risk of creating more confusion than clarity,” he said.
One of the main concerns is that using principles-based stockpicking takes away from capital gains. This has been seen among ESG and ethical funds, which have avoided sectors such as tobacco.
The popularity of principles-based investing is on the rise. A recent survey by finance firm Boring Money found the majority of investors thought impact investing in healthcare and green energy was important. But the survey also showed that concerns about giving up returns still polarised investors and was not necessarily falling away.
Manager Mr Olsen said stocks included in the fund would have a strong investment cases, but investors should be able to tolerate deviance in performance against the benchmark over shorter periods.
The fund will be tilted towards emerging markets and have a bias towards small and medium-sized companies, with healthcare being the largest sector allocation. Mr Olsen said this is because spotting meaningful impact tends to be easier in smaller stocks and those in developing economies. However, this meant fund performance versus the MSCI benchmark could vary significantly over the short term and potentially prove more volatile.
He said: “The reason we have pegged ourselves against such a broad benchmark is because we want to show a fund like this will be able to beat the benchmark. Just because we have decided to have this dual proposition does not excuse us from obligation to provide a better than average return over time.
“There is a very good valuation story for a lot of the companies included, as money is flowing towards the UN SDGs. We expect investors to buy into the impact idea. That is what we’re highlighting and makes us different to other ethical and ESG-focused funds.”
M&G said the fund would soon be made available on private investor platforms.
