Fund Spotlight - Issue 6

Fund Spotlight - Issue 6

2 | Fund Spotlight - Issue 6

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Fund Spotlight - Issue 6 | 3

Editor’s Forew0rd

Hello and welcome to issue 6 of Fund Spotlight

There are pockets of value in Asian equities and opportunities in areas that have not captured the imagination of the Robin Hood brigade. However, Schroders Fund Managers, Matthew Dobbs and Richard Sennitt think investors should be patient, think differently from the crowd, and focus on long-term sustainability. Read full article on pages 4 & 5. Bond markets are in aggregate looking expensive, but Liontrust’s David Roberts explains how to find investment opportunities despite this. On page 9, Invesco introduces their new Summit Responsible Range – five risk-targeted multi asset funds that look to provide a low- maintenance, low-cost ESG solution for advisers and their clients. TIME Investments explores the increased focus on intergenerational planning in the context of Inheritance Tax, and the importance of striking the right balance between sensible planning to ensure that future generations can share in the family wealth, whilst allowing adequate income to cover the different needs at various stages of their lives. Maria Municchi, Fund Manager of M&G’s newly launched Sustainable Multi Asset fund range, discusses how M&G’s global approach which applies a positive ESG-tilt and a climate focus, can help meet investor’s financial goals and preserve our planet’s resources. There are always risks and opportunities in emerging markets, where exogenous factors can have huge influence over those companies that succeed and those that fail. Against this backdrop, Fidelity Emerging Markets Fund Portfolio Manager, Nick Price, explains why he maintains a relentless focus on sustainable businesses that can deliver high returns. Where can these opportunities be found? Read more on page 15. Further contributions have been provided by AXA IM, Blackfinch, Premier Miton, Vanguard and Columbia Threadneedle, ensuring that this edition has plenty of helpful guidance and useful information to keep up to date with the current funds in the marketplace.

Cristina Giovanelli Marketing Consultant

4 | Fund Spotlight - Issue 6

The outlook for Asian equities

Matthew Dobbs Fund Manager, Asian Equities & Head of Global Small Cap

Richard Sennitt Fund Manager, Pacific Equities and Global Small Cap Equities

up cheap bargains and great companies being thrown out in the panic), it has turned out a vintage year. All in all an extreme example of cutting through the noise and fixing on the long-term.

was a widespread consensus on a global recovery and a strong earnings year ahead. Well, it is obvious in hindsight that Mr Market was wrong – or was he? Fact is that for those who held their nerve in the Spring (and even more for those who used that turmoil to pick

It seems ancient history now, but 2020 opened with a high degree of optimism for Asian markets. True, valuations were no more than reasonable given the re-rating of the previous twelve months, but liquidity conditions appeared favourable and there

Fund Spotlight - Issue 6 | 5

Asia rises to the challenge Of course, it is never that simple. The Spring months seemed to present an existentialist threat perhaps even to humanity itself, a “Day of the Triffids” moment. As it turned out, Asia has proved well up to the challenge. Many of the more advanced Asian economies have dealt with the pandemic efficiently and effectively and, for those who cite different culture and a more conformist mindset, might want to reflect on the full stadia at sporting events in much of Australia as we write. If the United States had emulated Taiwan in the minimisation of fatalities, only some 100 US citizens would have died against the over 400,000 that have. Of course, not every Asian country has the resource and institutional depth to respond, but in the case of India and much of the ASEAN region, young populations are proving resilient both physically and spiritually. Going virtual Asia was also remarkably adept at re- invigorating and adjusting supply chains. While economies exposed to services (fluff rather than stuff) suffered as travel, tourism, bricks and mortar retail collapsed, hard exports have been surprisingly strong and with inventories lean, earnings have proved at the least resilient, and in some cases remarkably robust. This has been particularly true in the information technology complex as the world has gone virtual; virtual work, virtual play, virtual shopping, virtual everything. Adding to the mix has been a very benign global liquidity backdrop led by the US Federal Reserve, and accompanied by extraordinary levels of fiscal activism. A weak dollar has added to the fuel, as has a rise in thematic investing, driven in part by the fact that the pandemic has only served to further accelerate digitization trends already firmly in train. Asia has ample representation

captured the imagination of the Robin Hood brigade; as ever we are prepared to be patient, think differently from the crowd, and focus on long-term sustainability. Schroder Asian Alpha Plus Fund If your clients are looking for a sustainable Asian equities fund that is managed differently from the crowd, then why not consider the award-winning* Schroder Asian Alpha Plus Fund run by Matthew Dobbs and Richard Sennitt? To find out more, contact your usual Schroders representative or visit schroders.com Important information *The Schroder Asian Alpha Plus Fund named the best the Asian Equity (Active) Fund in the AJ Bell Awards 2020. Marketing material for professional clients only. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Schroders has expressed its own views and opinions which may change. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. This information is not an offer, solicitation or recommendation to buy or sell any financial instrument or to adopt any investment strategy. Any reference to sectors/countries/ stocks/securities are for illustrative purposes only and not a recommendation to buy or sell any financial instrument/securities or adopt any investment strategy. Nothing in this material should be construed as advice or a recommendation to buy or sell. Reliance should not be placed on any views or information in the material when taking individual investment and/or strategic decisions. No responsibility can be accepted for error of fact or opinion. Issued in February 2021 by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU, registered No. 1893220, who is authorised and regulated by the Financial Conduct Authority. UK002094.

in public markets of companies that benefit; computer gaming, e-payments, e-commerce, electric vehicles, as well as the suppliers of spades to the miners such as robotics, artificial intelligence, and semiconductor testing and production. A long-term case for Asia Thus far, perhaps history. But to understand where we are going, it helps to understand where we have been. We remain convinced of the long-term case for Asia, and that is in the knowledge of the less good things that have intervened including continued tension between the United States and China (a fact of life) and the many political fissures (Hong Kong, North Korea, Myanmar). The shorter-term outlook looks less enticing. Valuations are in aggregate somewhat stretched, so the recovery in earnings anticipated appears well recognised by the consensus, and as we know earnings very frequently disappoint. Furthermore, by the same token that Asia had a “good war” over COVID, so there is not the same degree of recovery potential as possibly present elsewhere. We would also expect most regional monetary and fiscal authorities to continue a relatively conservative stance, led by China which has recently signalled some concern over exuberant markets. In our view, they are right given distinctly bubble like valuations in areas such as bio-technology and electric vehicle manufacturers. Think differently from the crowd So in summary, we are working on the assumption of more measured progress for the region in 2021. Investors may have to work harder for positive returns as some of the long- term growth names need to grow into their valuations. There are also pockets of value and we see opportunities in areas that have not

*AXA Global Strategic Bond does not feature on panel. Tenet Network advisers should obtain off-panel approval prior to recommending this product.

Fund Spotlight - Issue 6 | 7

Which bonds for 2021?

This includes avoiding certain risks at the moment, such as exposure to energy prices, changing technologies or financial sector contagion, and committing cash where they believe they will receive a return that justifies the risk. Key Risks: Please remember that past performance is not a guide to future performance and the value of an investment and any income generated from them can fall as well as rise and is not guaranteed, therefore you may not get back the amount originally invested and potentially risk total loss of capital. Investment in Funds managed by the Global Fixed Income team involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The value of fixed income securities will fall if the issuer is unable to repay its debt or has its credit rating reduced. Generally, the higher the perceived credit risk of the issuer, the higher the rate of interest. Bond markets may be subject to reduced liquidity. The Funds may invest in emerging markets/soft currencies and in financial derivative instruments, both of which may have the effect of increasing volatility. Disclaimer: Issued by Liontrust Fund Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518165) to undertake regulated investment business. This document should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/ shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. It contains information and analysis that is believed to be accurate at the time of publication but is subject to change without notice. While care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. This document must not be distributed to, or relied upon by, retail investors. It should not be copied, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust.

We do not advocate investing in fixed income markets in aggregate because of how expensive and risky they are. But this does not mean we dismiss bonds in totality; conversely, we believe there are opportunities for those who actively manage their investments. One of the most powerful allocation tools at the moment is the ability to escape the anaemic yield environment of government bonds by strategically allocating money to different areas of the corporate bond (or credit) market. The extra yield an investor gets from lending to a company rather than a government reflects the greater default risk; companies can go bust whereas many developed market governments can print more money to cover loans. High yield is a particular focus for us at the moment. The high yield market consists of bonds issued with lower credit ratings and offer a higher yield to compensate for this risk. An example of one of our holdings is Netflix. We recognise there are credit risks: before the Covid crisis Netflix still invested more cash than it generated because it has been growing so quickly, and well-resourced rivals like Amazon, Apple and Disney ensure a very competitive market. Netflix, however, has more than 200 million subscribers who we think have a reasonable degree of brand loyalty. We also view content streaming as non-cyclical; customers will retain their £9 a month subscription during tough economic times, as shown by its subscriber growth during the pandemic. We think Netflix’s default risk is low and, if needed, the company could swiftly switch to cash generation mode by toning down its investments. Investors are facing three challenges in investing in bond markets at the moment – in aggregate they look expensive, there is a lack of yield and they have higher interest rate risk. Despite this, there are still opportunities to take advantage of market inefficiencies and generate relatively attractive levels of income. To do this, investors need to be selective and flexible when investing across fixed income markets, including corporate bonds.

David Roberts Head of the Liontrust Global Fixed Income Team

Lending to the UK government can cost you money. This is because 10-year government bonds currently net a yield-to-maturity (a total return measure incorporating initial investment, interest payments and final loan repayment value) of 0.3% a year. Current inflation expectations, using the RPI (Retail Price Index) measure, are for 3.1% over the next 10 years, implying a -2.8% annual real return on 10-year government bonds. This does not mean investors should ignore the bond markets but they would be advised to review their exposure to bond funds, what role they are playing in their portfolios and whether they are invested in the most attractive parts of the fixed income markets. The yields on government debt have tumbled since 2008 because of low interest rates, QE (Quantitative Easing) and investor demand for “safe” assets. This means investors have made good total returns from government bonds over this period but yields now do not have much further to fall, even though some countries have experienced negative rates. It seems logical that bond market prices will fall (and yields will rise towards more normal levels) at some point but central banks still have huge power to control and manipulate markets via bond buying. Not only are bond markets in aggregate more expensive than in the past but they are also potentially riskier. This is shown by the fact the duration of the Bloomberg Barclays Global Aggregate Index of government and corporate bonds has increased from around 5.5 years to over 7 years in the last decade. Duration explains how sensitive a bond is to movements in yields; when the interest rate on a bond rises, its price goes down. A higher duration implies higher interest rate risk.

Fund Spotlight - Issue 6 | 9

Making responsible investing accessible

On 14 January 2021, Invesco announced the launch of the Invesco Summit Responsible Range – an affordable range of five, risk-targeted global multi-asset funds, which incorporate Environmental, Social and Governance (ESG) considerations into their portfolios. The fund-of-funds range typically invests in low-cost ESG investment instruments, such as exchange-traded funds (ETFs). These are selected according to a ‘Responsible Asset Allocation’ framework, which prioritises investments that meet certain ESG criteria. The Responsible Asset Allocation framework was pioneered by the range’s multi-asset fund managers: Clive Emery and Richard Batty, who are supported by deputy fund manager, David Aujla. They will work in partnership with the Invesco Investment Solutions team while also benefiting from close collaboration with the experienced Henley Multi Asset team. There will also be significant input from Invesco’s global ESG and ETF teams. Clive Emery said: “By putting ‘Responsible Asset Allocation’ at the start of the portfolio construction process, our proposition offers investors clarity on what drives our responsible investing decisions.” Responsible Asset Allocation defines the appropriate ESG characteristics of the team’s investments. The two additional and more traditional steps in the investment process aim to enhance the risk and return characteristics of the funds by exploiting market opportunities and mitigating risk, where appropriate. The five funds in the Summit Responsible Range aim to invest 100% of their assets in ESG investments.* The funds are globally diversified and aim to generate long-term returns. Each fund is managed around a different volatility target – from 15% of global equity volatility to 105% – so it is easy to find one that matches your clients’ appetite for risk and return.

This is achieved through a blend of equities, bonds and cash. As the funds increase in risk, so too does their exposure to equities.

Figure 1. Asset allocation – as the funds increase in risk, so too does their exposure to equities.

For illustrative purposes only. Risk targets are relative to the MSCI AC World index. There is no guarantee that these risk targets will be met. OCF = Ongoing Charges Figure The Summit Responsible funds invest in low- cost ESG instruments, such as ETFs, as these offer one of the most efficient ways to gain exposure to financial markets. This means the range can be offered with an Ongoing Charges Figure (annual charge) starting from just 0.26%. Alexander Millar, Head of UK Distribution at Invesco said: “ESG considerations have become an essential part of financial advice. It’s important that we help advisors by offering simple, affordable products that match their clients’ ethical values and investment goals.” Please note this product is not currently on the Tenet Panel. Therefore appointed representatives who deem it suitable for their clients must follow the off panel approval process. * Invesco Summit Responsible funds aim to invest 100% of their assets (excluding cash) in investments meeting certain ESG criteria. Further information can be found in the Prospectus and Key Information Document. Investment risks The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. The Invesco Summit Responsible Range has the ability to use derivatives for investment purposes, which may result in the funds being leveraged and can result in large fluctuations in the value of the funds. The funds’ risk profiles may fall outside the ranges stated in the investment objectives and policies from time to time. There can be no guarantee that the funds will maintain the target level of risk, especially during periods of unusually high or low market volatility.

The funds may be exposed to counterparty risk should an entity with which the funds do business become insolvent resulting in financial loss. The securities that the funds invest in may not always make interest and other payments nor is the solvency of the issuers guaranteed. Market conditions, such as a decrease in market liquidity for the securities in which the fund invests, may mean that the fund may not be able to sell those securities at their true value. These risks increase where the fund invests in high yield or lower credit quality bonds. The funds invest in emerging and developing markets, where there is potential for a decrease in market liquidity, which may mean that it is not easy to buy or sell securities. There may also be difficulties in dealing and settlement, and custody problems could arise. The use of ESG criteria may affect the product’s investment performance and therefore may perform differently compared to similar products that do not screen investment opportunities against ESG criteria. Important information This article is for Professional Clients only and is not for consumer use. All >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

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