June is a significant month in the Environmental calendar, hosting World Environment Day, World Oceans Day and World Rainforest Day, so it seems fitting that we are celebrating the first anniversary of this portfolio.
One year ago, we launched the Carrington Sustainable Growth portfolio in acknowledgement of the changing perceptions towards Environmental, Social and Governance (ESG) factors. This portfolio is available on a number of the platforms we use and can be invested in via your ISA’s, Pensions and GIA’s.
There have been many conversations around these points over the years, but they seem to have gathered momentum and importance in recent times as people have come to realise that we cannot continue on the same path both environmentally and socially. The recent protests seem to be yet another social tipping point.
OUR INDUSTRY
Given the sums of money involved in the asset management industry and its direct link with the corporate world, it provides a natural conduit through which change can happen. Whilst many investment managers in the UK were still trying to comprehend the changes (and many were in denial), we could see the direction of travel and that this was a long-term structural change. The Carrington Sustainable Growth portfolio evolved soon after into a portfolio of investments, investing in the key themes relating to these issues, and we are very proud to have been at the forefront here. If you would like to read more about the portfolio, click here.
FOOD FOR THOUGHT
KEY THEMES
It seems that the themes running through the portfolio have become even more important following the pandemic. Technological adoption, healthcare innovation and clean energy, the key themes running the portfolio are some of the best performing sectors this year.
Due to the pandemic, many businesses have brought forward their spending on IT infrastructure to aid with remote working. This has fuelled a boom in cloud computing for example, which was already seeing high rates of growth and adoption.
Again, healthcare innovation was already seeing large amounts of interest and Research & Development, particularly around gene therapy, but COVID-19 has led to an acceleration here.
BP & Shell
Some other notable developments over the past year have been in the energy sector. Shell announced that they would link executive pay to their carbon emissions to demonstrate how serious they were about becoming carbon neutral. BP were forced to act and have since said that they will become carbon neutral by 2050. Naturally, there is some scepticism around these statements, but it suggests these companies are waking up to a new world, where if they don’t change, they could lose the majority of their support from the asset management industry.
Renewable Energy
Renewable energy continues to take market share from fossil fuels, with the key components being solar and wind energy. The cost of these technologies has reduced so much in the past few years that it no longer makes economic sense to use coal. You may have read that the UK spent over two months this year, during the lockdown period, without relying on coal for energy which is the longest period since the 19th century.
John Laing Infrastructure Group is a widely held UK company which invest in environmental infrastructure projects including wind and solar farms, as well as waste management and anaerobic digestion. Sustainability is at the core of their operations making them an ideal candidate for inclusion in the funds we own.
Novo Nordisk
One of the companies that features prominently in the portfolio is a world leader in the treatment of diabetes, Novo Nordisk. 11.3% of the world’s annual deaths are attributed to diabetes and half of these occur in people under the age of 60. It is estimated that the current burden on the global health system from diabetes is $760bn per year. This is projected to rise to $1trn by the year 2045, creating a natural tailwind behind this company and its new generation of GLP-1 drugs, which have better efficacy in managing blood glucose levels and lead to lower cardiovascular and hypoglycaemia risks.
Tesla
We will shortly be introducing a new fund which has Tesla as its largest holding. Tesla is one of those companies that are like marmite in the ESG field. Clearly, you could make some arguments against their corporate governance standards. However, they were one of the first to attempt to mass produce electric vehicles, creating a structural shift in the auto industry towards hybrid and electric vehicles. A particularly exciting part of the business is their battery technology, which could have uses in the renewable energy sector, where much of the energy generated is lost if not used immediately.
PERFORMANCE
12 months on and there have been some notable developments. The first to mention is the performance. A common misconception is that investing sustainably comes at the cost of performance. From its launch to the end of 2019, the Sustainable Growth portfolio was our best performer. 2020 has been a very different and much more challenging experience in the markets to 2019, but once again the portfolio has outperformed.
Performance of the Carrington Sustainable Growth Fund against the FTSE 100 between June 2019 & June 2020.
A long-term study has, in fact, demonstrated that funds operating via an ESG mindset have on average outperformed their peers over the past ten years. Given our comments above, we see no reason why this won’t continue for the next ten years and so expect our core portfolios to increasingly integrate ESG funds.
SUMMARY
These news headlines are likely to become commonplace in the years ahead. Of the $100 trillion in the asset management industry, only 0.25% is invested in dedicated sustainable investments. The investment community is gradually acknowledging the shift, and this will create a natural tailwind behind our Sustainable Growth portfolio.
As you can tell this is something we as a team are very excited and passionate about, so if you would like to discuss this further, asses risk suitability and check the availability of the portfolio on your platform, please either drop us a line or give us a call, we’d love to hear from you.
This publication has been prepared for information purposes only by Carrington Investment Consultants Ltd. The value of investments, and any income generated from them, will be affected by interest rates, exchange rates, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which it invests. Investors should be aware that the value of units may well fall as well as rise, is not guaranteed and that past performance is not a guide to future performance.
