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WHEB Sustainability: ESG without the greenwashing

A fund with proven ESG credentials
WHEB Sustainability: ESG without the greenwashing

A sharp sell-off in the US tech sector has reminded investors that the best-performing investments of 2020 were always at risk of giving up some of their substantial gains. But longer term trends accelerated by the pandemic – such as the adoption of digital services – should continue to boost returns in the coming years.

251.97p
Tip style
Growth
Risk rating
High
Timescale
Long Term
Bull points

Sole focus on companies offering "sustainability solutions"

Differentiated from other equity funds

Focus on growth stories

Bear points

Not immune to equity risk

The same argument applies for sustainable investments, which have generally held up well this year but should continue to draw investors long after the Covid-19 pandemic is over. Sustainability issues have taken on huge momentum in recent years. As a bonus, dedicated sustainable portfolios can look much different to “conventional” funds in terms of their composition, potentially offering some diversification from the ups and downs of broader equity markets. But with more and more asset managers suddenly attempting to bolster their sustainable credentials, it is important to identify funds whose ESG processes withstand scrutiny.

One name that passes muster is WHEB Sustainability (GB00B8HPRW47), a global equity fund that launched in its current format in 2012. The fund’s managers favour high-growth businesses, with a preference for sectors and themes that promise good returns but remain underappreciated by other investors.

 

The team focuses on companies involved in the transition to “healthy, low-carbon and sustainable economies”, with the portfolio broken down into nine different themes. These include five environmental themes (cleaner energy, environmental services, resource efficiency, sustainable transport and water management) and four social themes (education, health, safety and wellbeing). The fund has recently had a notable skew to the themes of resource efficiency and health, though holdings can fit into more than one category.

Importantly, this fund does not simply apply an ESG screen to an existing investment process or back those companies with better sustainable credentials than their peers. WHEB Sustainability stands out because its managers focus exclusively on companies “providing solutions to sustainability challenges”.

The fund’s biggest positions at the end of July included Danaher, which designs and makes medical products, French nursing home operator Orpea and Icon, a clinical research business that provides services to the pharmaceutical, biotechnology and medical device industries. Beyond the health space, stocks held in the fund include Linde, which provides gases to manufacturing, petrochemical and electronics companies and - in the eyes of the managers - helps to make manufacturing processes more efficient as well as reducing harmful emissions. MSA Safety, another holding, makes products including respirators, gas masks, helmets and thermal imaging cameras for practices such as firefighting and industrial construction.

In terms of what it holds, this fund should look significantly different from other global equity funds as well as many single-country funds. A focus on quality businesses and those with strong ESG credentials should also result in a fairly defensive portfolio. The fund, which had 50 holdings at the end of July, is diversified across different sectors and countries, though it does have a large weighting to North America.

As with other equity funds, this is a holding for the longer term and will not be immune to bouts of market volatility, economic challenges or stock-specific issues. CSL, a blood plasma specialist held by the fund, struggled in July because of concerns about the effect of Covid-19 on its plasma collection, for example. Investors using global equity funds should also watch out for potential overlap with other holdings, though this portfolio may have little in common with some “conventional” funds. WHEB Sustainability is also not cheap, with an ongoing charge of 1.05 per cent.

With plenty of risks facing equities, this fund still faces risks. But a dedicated focus on businesses that grow while dealing with pressing issues should provide solid, ethical returns in the longer term. Buy. DB

WHEB Sustainability (GB00B8HPRW47)    
Price251.97pMean return9.12% 
IA SectorGlobalSharpe ratio0.5 
Fund typeOeicStandard deviation16.53% 
Fund size£455.5mOngoing charge1.05% 
No of holdings50Yield0.14% 
Set-up date8 June 2009, but relaunched on 30 April 2012More detailswww.whebgroup.com 
Manager start dateTed Franks: 01/06/2015   
     
Source: Morningstar, 09/09/2020    
     
     
Performance1-year total return (%)3-year cumulative total return (%)5-year cumulative total return (%)10-year cumulative total return (%)
WHEB Sustainability11.1426.0886.82132.41
MSCI World3.8928.2287.74202.76
IA Global5.3724.7278.07154.71
     
Source: FE, 08/09/2020    
     
Investment themes (%)    
     
Health27.9%   
Resource efficiency24.9%   
Environmental services10.6%   
Sustainable transport10.3%   
Water management7.1%   
Safety6.8%   
Wellbeing5.9%   
Education2.9%   
Cleaner energy2.6%   
Cash1.0%   
     
Source: WHEB, 31/07/2020    
     
Regional weightings (%)    
     
North America62.9%   
Europe15.6%   
Japan9.3%   
UK6.5%   
Asia ex-Japan4.8%   
Cash1.0%   
     
     
Source: WHEB, 31/07/2020