Noland Carter, head of Heartwood Investment Management and its chief investment officer, believes that the UK is playing catch-up to its rival markets in Europe and North America when it comes to the development of fixed-income and sustainability-focused investment funds.
At a briefing concerning the launch of four new sustainable funds, Mr Carter told Fundeye that the European markets were the real trailblazers, spearheaded by a legacy of development in the Nordic region.
Explaining his outlook, he said: “The Europeans, as a percentage of assets under management, are the furthest ahead, led predominantly by the northern European markets. I think that is to do with culture and political environment over many years, where there is a much more socialist environment than we have.”
He also compared the UK market unfavourably with the US market from a sustainability perspective.
Mr Carter said: “The Americans have a much larger endowment and not-for-profits sector, and the amount of money which they have under management that stems from the government is also much greater.”
The Heartwood chief investment officer also noted that the US has a higher fiduciary structure and the fact that such a significant percentage of UK assets remain managed by investors outside the country compared to the US.
Commenting on the UK’s investment climate in broader terms, he added: “We run about seven-and-a-half to eight trillion pounds of assets in the UK, of which over a half is managed by investors who based outside the UK. If you look at the US market and the European market, they are very domestic markets from an asset management perspective with over 80 percent of the money managed in the US is either US equities or US bonds.”
This led him to conclude that change needed to be driven from investor demand in order to improve the UK’s sustainable investment infrastructure.
He said: “You need change to be driven from somewhere, not necessarily by fund managers and investors, and this would be demand.”
Ben Matthews and Matthew Toms joined Mr Carter for the briefing, as Heartwood has assigned them as co-managers for the four newly launched multi-asset sustainability funds the asset manager has developed. The aim of the launched funds is to make sustainable investing more accessible, irrespective of portfolio size and risk tolerance, without compromising performance.
The four funds: Defensive Sustainable, Cautious Sustainable, Balanced Sustainable, and Growth Sustainable, will be actively managed by the pair, with the support of a wider investment team and with the assistance of its sustainable investment process Each fund has a clear target return benchmark and seeks to create a positive return over a five-year period. The process is built around three pillars: exclusions, strong ESG integration, and impact investing.
Heartwood began researching multi-asset sustainable propositions in 2013. It has created four global multi asset sustainable strategies across the risk spectrum – Defensive, Cautious, Balanced and Growth. Since March 2016, Heartwood has run portfolios for Balanced and Growth, before adding Defensive and Cautious in October 2017. Since inception, the Balanced Sustainable strategy has achieved a total return of 24.2 percent compared to 21.4 percent for its core Balanced strategy over the same period.
Mr Toms spoke to Fundeye about the potential headwinds facing the newly launched sustainability funds, while also emphasising how pleased he was with the performance of its own sustainable funds. He suggested investors wavering at the prospect of investing in sustainable and ESG compliant funds were more likely to be fickle in their decision making. The co-manager argued that if there was one holding people weren’t happy with, they were more likely to withdraw.
He said: “There is a range of reasons why people might not invest substantially. It’s very easy to look at sustainable funds and say ‘there is a little bit I don’t quite agree with’ and choose not to do it all. That is one of the biggest challenges we face when it comes to convincing investors to invest sustainably.”
On a more positive note, Mr Matthews noted the performance of the funds, which he found to be surprisingly high. He also commented that the funds were attracting investors across the entire spectrum.
In a press release, he added that this made him certain the fund’s performance would not be hampered by its stringent sustainability criteria.
He said: “Our trial period revealed that our sustainable strategies achieved similar returns to our core strategies and so we are confident that investing sustainably does not compromise performance.”
Summarising the outlook of the funds, Mr Toms concluded: “Alongside the financial targets, our sustainable funds look to achieve two sustainable goals: to incentivise corporates and governments to improve their environmental, social and governance impact, and to make investments that contribute to solving ESG problems and align with the United Nations Sustainable Development Goals. A positive impact with a positive return.”
Heartwood Investment Management is owned by Handelsbanken, a bank with EUR 28 billion under management in sustainable funds.
