Given the recent launch of BlackRock’s ESG multi-asset ETFs it seems that there is investment demand for sustainable multi-asset funds. This is apparent when looking at Heartwood Investment Management’s sustainable multi-asset range seeing its AUM balloon from £10 million to £130 million in just a year.
Matt Toms(pictured) co-manager of the funds told fundeye that the balanced fund (the funds range in risk appetite from the defensive to the more risk-on ‘growth’) received about £80 million of the flows suggesting investors had a fairly high risk tolerance.
In terms of how the funds’ portfolios are constructed, this differs slightly depending on the risk appetite of the investor. “The issue of being multi-asset using a combination of active and passive products is no different in the sustainable world than the traditional world. We compete against those who are totally passive and completely active,” says Mr Toms.
He’s referring to the fund of funds approach the firm uses. In the selection of sustainable multi-asset funds, there are ETFs as well as some more curious products, such as M&G’s ESG High Yield product.
“We introduced the M&G ESG high yield fund In March, the timing was great because spreads had blown out. We bought a fair bit of it over March and April. We had the benefit of capital appreciation and so we had the benefit of both capital appreciation and spreads,” said Mr Toms.
The funds also have exposure to alternative asset types such as renewable energy and social housing which were less correlated to the overall equities market. The fund gains exposure to these themes by investing in investment trusts such as The Renewables Infrastructure Group (TRIG) and Civitas, both of which have held up well during the market malaise.
“I think one of our strengths of the business, is our due diligence process whereby we have quite a few analysts doing fund research so its high calibre. We're trying to find it managers who are adding some sort of value, whether that be on the return side or, in this case, not just on the sustainable side,” enthused Mr Toms.
If this group of funds enjoys another year of growth anywhere near the one it recently enjoyed, asset allocators will have to take notice. While some bemoan the fund of funds approach, claiming it layers up fees, 1.26 percent is higher than a passive product but given sustainable investing is still a novelty among certain asset classes (heard of a sustainable hedge fund?) it may be wise to pay the extra basis points for a team that has shown it can pick the winners.