Three new ESG investment funds to consider

The choice of funds in the Environmental Social and Governance (ESG) sector for investors has increased with the launch of three funds from leading fund managers.

 ESG investing

BNY Mellon

The Mellon Investment Management BNY Mellon Sustainable Global Equity Income fund [pdf] will be managed by Newton Investment Management (NIM), as part of its UK-domiciled fund range, BNY Mellon Investment Funds.

It is managed by Nick Clay, leader of equity income; and Rob Stewart, head of responsible and charity investment, with support from the wider equity income team.

The fund will follow NIM’s global thematic approach to identify areas of potential investment opportunity and risk to achieve income with some capital growth by investing in global companies that demonstrate attractive investment attributes and sustainable business practices, which have no material unresolvable ESG issues. Portfolio fewer than 70 stocks.

Ryan Lightfoot-Brown, ESG research analyst at Chelsea Financial Services said: “Nick Clay has a great track record on the BNY Mellon Global Equity Income fund, which we like a lot. It will use the same global thematic approach, with the added element of specifically targeting those companies that demonstrate sustainable business practises and those where engagement can lead to better practises.

“One of the difficulties in running an ESG/sustainable fund is usually the quality of analysis available to investors. But with the large number of analysts and resources at Clay’s disposal, he should be able to avoid these issues and give investors access to a core global income fund, with the future-proofing of sustainable oversight.”

Invesco

The Invesco Quantitative Strategies ESG Global Equity Multi-Factor Ucits Exchange Traded fund (ETF) aims to deliver superior risk-adjusted returns over the long term when compared to global equity markets by investing in an actively managed portfolio of global equities that meet a defined set of ESG criteria.

Eligible stocks are screened for compliance with the fund’s ESG Criteria then scored based on their attractiveness against three investment factors:

  • Value – companies perceived to be inexpensive relative to market averages;
  • Quality – companies that demonstrate stronger balance sheets relative to market averages;
  • Momentum – companies whose historical share price performance or earnings growth have exceeded market averages.

Of the Invesco offering, Lightfoot-Brown said: “ETFs are a growing part of Invesco’s business. ESG demand from investors is growing too, so there is perhaps no surprise that this fund has been launched.

“What will be key is the criteria that Invesco apply when considering ESG factors. ESG data currently provided can often be too backward looking and not pick up today’s story. Volkswagen Audi Group, for example, had an excellent ESG score before the ‘dieselgate’ scandal.

“There is also the fear companies can start to game this system, putting in key words to their financial reports in order to ‘greenwash’ their corporation. As such, we prefer active funds in this space whose managers will ensure a well-rated ESG stock really is doing what it says.”

Related: Why ESG ETFs are not for me

Schroders

The Schroders ISF Global Energy Transition fund will harness the global shift towards a low carbon energy system, identifying growing opportunities across the clean energy-focused investment universe, spanning renewable power production and energy equipment, transmission and distribution, energy storage, smart grid technologies and electric vehicle charging.

Lightfoot-Brown said: “This fund picks up on the growing, and likely irreversible trend, of the move towards renewable energy and the industry that will build up around it.

“In the UK for example, there are new solar and wind farms being built without subsidies, showing how economically viable these projects now are. As we move towards a new paradigm of power generation, there will be a shift in the infrastructure required and this is the theme this fund will tap into. It will not be just wind farms out at sea, but distribution networks, battery storage for grid support, all the way to electric car chargers. It plays into the new industries emerging.

“With consumer preference and government ambition both tailwinds to this sector, this fund could give investors exposure to a new and exciting area with ongoing structural demand.”

Schroders ISF Global Energy Transition fund review – by Patrick Connolly of Chase de Vere

It might seem like a great idea to invest in a fund which is looking to benefit from the transition to a low carbon economy. This is likely to be a global theme that will last for decades and so there should, in theory, be an opportunity for investors to benefit.

This fund is focused on clean energy, investing across renewable power production, transmission, distribution and storage, as well as smart grid technologies and electric vehicle charging.

It will not invest in companies with exposure to nuclear or fossil fuels.

It is managed by Schroders’ commodities and resources team and, using a long-established investment process, it combines its sustainability focus with a search for companies that can deliver long-term earnings growth and be bought at a reasonable price.

This all sounds pretty good, although the move to a low carbon economy is a long-term trend and investors might have to wait for the long-term in order to benefit, to date investors have not been particularly rewarded for investing in alternative energy.

The specialist nature of the fund, and the fact that it will hold a concentrated portfolio of 30 to 50 stocks, means it could be volatile and it may be a real challenge for Schroders to pick the long-term winners that will benefit from a low carbon future; to achieve better short-term results their focus on earnings growth could be more important than their sustainability goals.

The fund is domiciled in Luxembourg and is denominated in US dollars, although there is a share class that is fully hedged to sterling.

I give it 2 out of 5.

Comments (0)