Fund Spotlight - Issue 5

issue 5 / winter 2020

Fund Spotlight

Inside this issue:

Tatton The ethical portfolio challenge Schroders The growing appeal of dividend income TIME Investments Impact investing: how to leave a sustainable legacy Premier Miton A solution to providing... a long-term sustainable income Invesco The flaws of “cyclical thinking” M&G Investments Recent trends in sustainable multi-asset investing Plus much more…

Always investing, always consistent

It’s business as usual for our investment teams globally. Underpinned by our robust processes, the intensity of our research and strength of teamwork we continue to do the best for our clients.

Working together when we are apart has never been more important. Whatever the outlook… Your success is our priority.

For use by Professional and/or Qualified Investors only (not to be used with or passed on to retail clients). This is an advertising document. Past performance is not a guide to future performance. The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. Your capital is at Risk. This material is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments, or to provide investment advice or services. Issued by Threadneedle Asset Management Limited, registered in England and Wales, No. 573204. Registered Office: Cannon Place, 78 Cannon Street, London EC4N 6AG. Authorised and regulated in the UK by the Financial Conduct Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. columbiathreadneedle.com 11.20 | J30595_TEN | 3210137 columbiathreadneedle.co.uk

Fund Spotlight - Issue 5 | 3

Editor ' s Forew0rd

Hello and welcome to issue 5 of Fund Spotlight

The economic fallout of Covid-19 has wreaked havoc for income-seeking investors. Savvy investors are turning from debt to equities as many equity markets are now expected to generate a higher yield than corporate bonds. Sean Markowicz highlights the reasons why on page 7. Tatton’s article talks about the ethical portfolio challenge, Tatton’s aim is to invest in best-in-breed ethical funds that have standards similar to those their investors aspire to. Page 6. TIME Investments examines the increased focus on leaving a sustainable legacy and how Business Relief can offer a dual benefit by providing a fast and flexible method of leaving a tax efficient financial legacy, whilst also offering a direct route to positive impact investing. Full article, page 9. On page 11, Invesco’s Randy Dishmon discusses the long-term structural changes that he believes will change the world and are shaping his concentrated global equity portfolio. HubwiseConnect explores the boom in the use of investment platforms, with advisers increasingly reliant on platforms to digitally service their clients. Find out more and the key features of HubwiseConnect on pages 12 & 13. Dynamic Planner CEO Ben Goss debates cash flow planning and the subject of stress testing a client’s portfolio. Ben pinpoints three pitfalls to consider here - and three benefits to adopting a stochastic approach to the problem. Pages 14 & 15. Plus, contributions from M&G Investments, Premier Miton, Columbia Threadneedle, Aberdeen Standard Investments, Brewin Dolphin and Blackfinch. We hope you find this supplement an interesting read and useful for keeping up to date with current funds in the marketplace.

Cristina Giovanelli Marketing Consultant

4 | Fund Spotlight - Issue 5

Recent trends in sustainable multi-asset investing M&G Sustainable Multi Asset Fund

Changes in the political sphere

launched and has also established holdings in some new opportunities since then. As well as the development of renewable energy production capacity and striving to reduce emissions of carbon dioxide, initiatives that seek to enhance resource efficiency and to reduce waste in existing infrastructure, may be considered candidates for inclusion in a positive impact-driven sustainable infrastructure investment. The fund allows for the extensive use of derivatives. Further risks associated with the fund can be found in the fund’s Key Investor Information Document. The value of investments will fluctuate, which will cause fund prices to fall as well as rise and investors may not get back the original amount invested. For financial advisers only. Not for onward distribution. No other persons should rely on any information contained within. This financial promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Conduct Authority in the UK and provides ISAs and other investment products. The company’s registered office is 10 Fenchurch Avenue, London EC3M 5AG. Registered in England and Wales. Registered Number 90776. 495507_OEIC_UK M&G Sustainable Multi-Asset fund is not on panel, network advisers would need to follow the off panel process.

used to focus on social projects which have a positive impact on society. We have witnessed a significant increase in demand for social bonds globally in 2020, driven by the Covid-19 pandemic and its effects. As a consequence, issuance of social bonds has increased significantly, so much so that it is expected to exceed the issuance of green bonds in 2020. While the Covid-19 pandemic may be one factor driving the expansion of the social bond market, we believe that other long-term trends will help drive the issuance of social bonds going forward. These could include combating poverty, the aging society, income inequalities and disparities in educational opportunity. Sustainability through positive impact A proportion of the M&G Sustainable Multi Asset Fund is specifically dedicated to assets that are considered to have a positive impact through addressing the major societal and environmental challenges of our time. We identify which of the 17 UN SDGs each holding particularly aims to address and we group those SDGs into one of six broader impact areas. For example: we combine SDG #1 (No poverty), SDG #2 (Zero hunger) and SDG #3 (Good health and Well-being) into an overall impact area we call ‘Better health, saving lives’. Infrastructure: Building paths to the future We believe that the development of infrastructure, particularly green or sustainable infrastructure, can help the world develop towards a more sustainable future. To that end, the M&G Sustainable Multi Asset Fund has maintained a strong commitment to infrastructure investments since it was

The Covid-19 pandemic has caused a significant shift to global economic dynamics. With the commitments of support offered by governments and central banks, sustainability has been the subject of increased focus on the political agenda. The 27 remaining European Union governments agreed to set up the European Recovery Fund, with a budget of €750 billion. The focus of that fund is on green and digital transition, with 25% of the funds to be dedicated to climate projects. Elsewhere, US President-elect Joe Biden’s platform includes plans to build sustainable infrastructure and a clean energy economy. Sustainable bond issuance The market in sustainable bonds has grown significantly in recent years, as borrowers seek funding to support their endeavours in support of the 17 United Nations Sustainable Development Goals (SDGs). In 2016, almost all of the approximately US$110 billion of sustainable debt issuance globally was in green bonds according to Bloomberg New Energy Finance. Green bonds are bonds where the proceeds of the issuance is intended to be applied to green causes, such as combating climate change. By 2019, global issuance of sustainable bonds had grown to US$465 billion, taking total global issuance of sustainable debt to more than US$1 trillion. Social bonds: A growing sector Social bonds – which may be issued by companies, governments or supranational bodies – are those where the proceeds are

Maria Municchi Fund Manager

Fund Spotlight - Issue 5 | 5

A solution to providing... a long-term sustainable income

We continue to like corporate bonds and other credit strategies from both a fundamental valuation and technical perspective, and while they have already seen a very decent rally since the end of March, we anticipate further strength. However, we are avoiding gilts due to the paltry yields on offer, well below core inflation. We believe the Premier Miton Multi-Asset Distribution Fund is well positioned to continue to provide a robust and reliable income stream from multiple sources. Risks All types of investment carry a degree of risk. It is possible your client could lose some, or all, of the money they invest. The level of risk varies depending on the type of investment. Find out more For more information, contact us on 0333 456 9033 or email [email protected]. 1 The historic yield reflects distributions declared over the past twelve months as a percentage of the share price of the fund, class A income shares, as at 02.11.2020. The yield is not guaranteed and will fluctuate. Past performance is not an indication of future returns. Important information: For information purposes and only to be issued to investment professionals. It is not for circulation to retail clients. It expresses the opinion of the author and does not constitute advice. Persons who do not have professional experience in matters relating to investments should always speak with a financial adviser before making an investment decision. For your protection, calls may be monitored and recorded for training and quality assurance purposes. Financial Promotion issued by Premier Miton Investors. Premier Portfolio Managers Limited is registered in England no. 01235867. Premier Fund Managers Limited is registered in England no. 02274227. Both companies are authorised and regulated by the Financial Conduct Authority and are members of the ‘Premier Miton Investors’ marketing group and subsidiaries of Premier Miton Group plc (registered in England no. 06306664). Registered office: Eastgate Court, High Street, Guildford, Surrey GU1 3DE.

that may be ‘unloved’ by other investors. While fund selection is important, how we blend the funds chosen is also a crucial part of the process. We are focused on trying to identify attractively valued income producing assets. High level of diversification The fund has a high level of diversification, typically with around 50 holdings. Each of these underlying holdings in turn then will hold a certain number of equities and bonds, thus increasing the number of underlying positions and spreading the risk. Each of the funds we hold fulfils a certain role. For example, within UK equities, some funds adopt more of a ‘growth’ approach, while others adopt a ‘value’ style. Likewise, some funds concentrate on large companies, while others are more focused on smaller companies. We buy funds that invest in companies that have a progressive income approach, which is to say that they aim to have rising dividends, which then flows through to the underlying funds. Within bonds, some funds invest in investment grade, some in high yield, others in Emerging Market Debt. While some bond funds invest in non-traditional bonds such as corporate loans, asset-backed securities and infrastructure debt that offer a good level of income and attractive diversification. Outlook The ongoing record low interest rates and various monetary and fiscal stimulus measures implemented globally in response to the pandemic will likely remain supportive for equity markets for the time being. We maintain a decent proportion of the fund in UK equities where valuations are very appealing, and the income on offer is also attractive. We also believe there are many attractive overseas equity opportunities, such as in Japan, as companies there are adopting a much higher dividend approach than previously. However, we continue to avoid expensively-priced US equities, where valuations have many uncomfortable similarities to the dot-com boom in 2000.

Mark Rimmer Fund Manager

Mark Rimmer, fund manager for Premier Miton’s multi- manager funds, discusses

a potential solution for providing a long-term sustainable income.

Multi-asset funds which adopt a multi-manager and multi-structure style can offer a potential investment solution for investors seeking a long-term sustainable income. The Premier Miton Multi-Asset Distribution Fund adopts this approach and is currently yielding 5.0% 1 . The fund aims to provide an attractive income stream that grows over time, with some long-term capital growth, but typically with less volatility than pure equities. The key is to provide a high level of diversification, investing not just in equities but also bonds, property and a handful of alternatives. Having very diversified sources of income helps to limit the volatility. Active investors We try to identify fund managers with a robust and repeatable investment process, and we conduct thorough due diligence of the underlying holdings, often seeking out smaller more nimble fund managers. Often this research process can involve tracking down less well-known fund managers, typically funds with a ‘high active share’. We take an active approach both to asset allocation and the funds which we hold, looking to take advantage of opportunities that market volatility and dislocations may provide. We often take a contrarian approach to asset allocation, looking to spot regions or sectors

FOR PROFESSIONAL ADVISER USE ONLY

THE ETHICAL PORTFOLIO CHALLENGE

By James Saunders, Head of Portfolio Management

How do we decide if a fund is ‘ethical enough’? This is the biggest challenge in constructing an ethical portfolio and is centered on a clear understanding of the objective of a fund and adopting some practical realism in how far we can go in assessing ethical investment criteria. In the global economy the interconnectivity of business means that at some level all firms, no matter how hard they try, can be challenged on their ethical standpoint. A simple, if blunt, example: since national governments engage in wars and the proliferation of militarised weaponry, we will not buy government-issued bonds for the portfolios, since they could be used to fund war. However, we all pay tax and we cannot stipulate that our taxes are only spent on health care or education, so should we exclude all taxpaying firms from our portfolios? Of course not, but we have to be satisfied that the manager and their fund are working as far as possible within some clear constraints to invest ethically. To do that we have identified seven industry sectors that we believe should have limited exposure in our portfolios. So look for fund managers who seek to exclude or limit exposure to these sectors. Frequently, they may take a best-in-class approach and only invest in the very best companies on ESG metrics in certain industries. Equally, some managers employ a focus on engagement and actively improving companies through their voice as a shareholder. We don’t believe there is one single approach that is correct and we assess the merits of each approach and a fund house's ability and consistency at applying it. ■

that are committed to sustainable and socially responsible practices. Here we offer a look at how we build and manage our portfolios. How does Tatton select fund managers for the Ethical Portfolios? Primarily, we select fund managers for all of our portfolios on their process and performance through our own due diligence process. This is the same process for our Ethical Portfolios with the additional focus on how they integrate ethical investing into their investment process. Fund managers are very different in their approach to all types of investing and this is no different for ethical funds. Since there is no industry standard, or benchmark, to assess how well - or badly - a manager

Tatton Investment Management was one of the first discretionary fund managers to introduce a complete range of risk profiled Ethical Portfolios as part of its managed portfolio service. Our Ethical Portfolios are designed to suit the needs of investors who want their investments to align with their own responsible investing concerns. Our aim is to invest in best-in-breed ethical funds that have standards similar to those we aspire to. We match the different style approaches of investment managers from across the world to create and manage an ethical portfolio that will suit investors who are seeking to include ethical factors within their long-term investments. Investing ethically adds another layer of scrutiny since our investment selections must also work from an ethical perspective.

Our aim is to invest in best-in-breed ethical funds that have standards similar to those we aspire to.

invests ethically, we research each fund manager on a firm by firm and fund by fund basis – individual funds within the same firm can also be managed very differently so we have to get under the bonnet before we can select a fund. We examine the managers’ use of >Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16

Made with FlippingBook - professional solution for displaying marketing and sales documents online