six monthly review Your guide to the markets and the Ethical portfolios

Transcription

1 September 2018 The art and science of investment six monthly review Your guide to the markets and the Ethical portfolios INVESTMENT

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3 Content Our Ethical range of model portfolios...4 Our review...5 Asset classes...6 Performance...6 Portfolio changes...6 Performance summary...8 Portfolio breakdown & performance details...9 Qualitative research...14 Important notes & general information...15

4 six monthly review Our Ethical range of model portfolios Our range of risk-rated ethical model portfolios are constructed using the same asset allocation principles as our other model portfolio ranges. Consistent portfolio construction across portfolios is key and enables the investment team to manage and monitor risk, as well as return. In addition, there are threshold levels of criteria that our model portfolios must meet due to their ethical and environmental nature. These are listed below: Alcohol Animal Testing - Cosmetics Animal Testing - Pharmaceuticals Climate Change Environment Equal Opportunities Gambling Genetic Engineering Human Rights Intensive Farming Military/Armaments Non-sustainable Timber Nuclear Power Pornography Positive Business Focus Shariah Law Tobacco Threshold criteria are graded independently by EIRIS (Ethical Investment Research Services). We screen our existing funds and other funds in the universe. We require our funds to meet a minimum of eight criteria. Otherwise they are discarded. We have outlined how a fund would be eligible for inclusion in the portfolio but ongoing monitoring also forms an important part of our continued due diligence. The FTSE 4Good issue a quarterly report, as does EIRIS; the latter is used to update the external screens outlined above which evaluate a fund s ethical properties. Environmental, Social and Governance (ESG) in addition to positive or negative screening, is where fund managers are increasingly using the power of investment to encourage companies to make their working practices more ethical and sustainable. This is the fastest growing area of ethical investments. Positive screening is where companies are making positive contributions to society such as good working conditions and policies, respecting animal welfare, investing in the community, demonstrating environmental initiatives including pollution control and alternative energy and being transparent. Negative screening excludes certain activities such as avoiding investment in companies that are involved in the production, sale and trade of arms and weapons, animal experimentation and intensive farming, tobacco, alcohol, pornography, companies that trade with countries which abuse human rights, environmental pollution and nuclear power. 4

5 six monthly review Our review 2018 has been a year of central banks market in Italy and currency markets. Oil prices have rallied over the past Even though they are careful to starting to normalise their interest The uncertainty around Brexit has six months after Donald Trump communicate their intentions, rates and policy. In the US, the pushed sterling downwards over the announced that the US would be increasing rates too quickly or Federal Reserve has raised interest last six months. Also in Europe, but in leaving the Iran Nuclear Deal. By the aggressively could have long-term rates twice so far this year, with a emerging economies, the Turkish lira US leaving this deal, sanctions on impacts on economies. possible two additional rate rises suffered huge falls in value with Iran s oil production were reapplied, before the end of the year. The chair Donald Trump s threats of sanctions seeing a restriction in the global oil of the Federal Reserve, Jerome and tariffs against Turkey pushing the supply. This drove the price up to over Powell, took over from Janet Yellen in currency down further. Emerging $80 a barrel, with forecasters February and has continued to markets have suffered globally over predicting a possible return to $100 a indicate their intentions of raising the past six months since our last barrel. rates back to their normalised level of review, as the dollar has 3% by In the UK, Mark Carney strengthened, and the pressures of The UK experienced its hottest and the Monetary Policy Committee trade wars increased. average summer since records began at the Bank of England raised rates by in These extreme temperatures 0.25% in August, aiming to keep Although central banks have are linked to the globally changing inflation at the Treasury s 2% target to continued to dominate, markets have climate and the enhanced greenhouse start to normalise interest rates. been resilient this year. The US market effect. The consequences of this passed through the longest ever bull summer s weather has led to higher Elsewhere at other global central run in August, whilst the S&P 500 also food prices as the extreme weather banks, the European Central Bank reached a record high a few days and temperatures caused difficulties have announced they will start to later. Markets have also been strong for growing crops. taper their bond purchase through political headwinds, programme down to nothing at the especially amid tariffs applied by Looking ahead to the next six months, end of this year but will not look to Trump and others globally. In an we expect market volatility to pick up raise interest rates until the middle of effort to reduce the US trade deficit, as trade war pressures intensify and As we have moved through the Trump announced tariffs on $34billion the chances of policy misstep from year, Europe has become more worth of Chinese imports, whilst central banks increases. politically unsettled, causing concerns continuing to threaten hundreds of in markets, especially the bond billions of dollars more. 5

6 six monthly review Asset classes Performance Portfolio changes Our ethical model portfolio range is Property Model portfolio performance has No changes were made to the model very different when compared to our been in line with our expectations portfolios since the last review in other ranges. There will be inherent The short-term concerns of the asset with all portfolios producing a March. The asset allocation also biases in having an ethically-led class in the wake of Brexit have positive return over one year and remains unchanged. We are happy investment process, typically resulting abated. Property continues to be a since launch. Over one year, model with the constituents and in a concentration towards smaller core asset class for the model portfolio performance has been composition of the portfolios. and mid-sized companies and portfolios, providing a positive return particularly strong with all model particular sectors. This will reduce the since launch. portfolios outperforming their diversification benefits that would respective benchmark. Since launch, normally be present in our other Equities all portfolios have outperformed their model portfolio ranges that do not benchmarks. Over six months, all have an ethical consideration. These form the higher risk portfolios have produced a positive component of the model portfolios. return and have outperformed their Fixed Interest There is a bias towards UK equities, benchmark, except for portfolios five with three of the ten funds investing and seven, which underperformed Fundamentally, we believe in predominantly in UK-listed their respective benchmarks due to diversification across the model companies. There are also three their allocation to fixed interest. portfolios of which this asset class global equity funds and one European forms an important element. A key fund, which gives us a satisfactory On an annualised basis, all portfolios attribute of the asset class is that it level of diversification. We have an produce returns commensurate with exhibits low correlation to equities overweight position in European the level of risk being taken, with the and therefore has a differentiated equities across the portfolios to returns increasing incrementally return profile. mirror that of our wider model across the range of portfolios. The portfolio range. portfolios had their three-year anniversary on the 1st of April

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8 six monthly review Performance summary ET01 Portfolio 1.2% 17.7% % 4.2% ET06 Portfolio 4.3% 29.0% % 7.0% ET02 Portfolio 1.5% 19.5% % 4.6% ET07 Portfolio 4.7% 31.0% % 7.4% ET03 Portfolio 2.4% 21.9% % 5.1% ET08 Portfolio 5.7% 34.3% % 8.2% ET04 Portfolio 2.2% 22.3% % 5.2% ET09 Portfolio 6.2% 36.3% % 8.6% ET05 Portfolio 3.9% 26.5% % 6.5% ET10 Portfolio 5.9% 37.0% % 8.7% ARC Sterling Cautious PCI 0.3% 10.8% 17.9% 8.3% ETO1 & ET02 Notes: ARC Sterling Balanced Asset PCI 1.9% 18.3% 27.8% 14.0% ET03 & ET04 The Ethical Portfolios one to ten were launched on the 1st April Due to rounding, relative performance may not correspond exactly with its constituent components above. ARC Sterling Steady Growth PCI ARC Sterling Equity Risk PCI 3.6% 26.7% 38.1% 21.1% 4.8% 33.0% 44.8% 26.2% ET05 & ET06 ET07,ET08, ET09 & ET10 8

9 ethical portfolio 01 This portfolio invests mainly in Cash and Fixed Interest and suits investors for whom minimising any capital loss is a priority over returns. ethical portfolio 02 This portfolio invests mainly in Cash and Fixed Interest and is suitable for investors who wish to protect their capital with a minimal amount of risk. Rathbone - Ethical Bond % 0.5% Liontrust - Sustainable Future Corporate Bond % -0.7% Kames - Ethical Corporate Bond % -0.8% L&G - UK Property % 8.5% Janus Henderson - UK Responsible Income 5 5.0% 4.1% Kames - Ethical Equity 5 5.4% 6.4% Rathbone - Ethical Bond % 0.5% Liontrust - Sustainable Future Corporate Bond % -0.7% Kames - Ethical Corporate Bond % -0.8% L&G - UK Property % 8.5% Janus Henderson - UK Responsible Income % 4.1% Kames - Ethical Equity % 6.4% ET01 1.2% 17.7% % 4.2% ET02 1.5% 19.5% % 4.6% 9

10 ethical portfolio 03 Invests mainly in Fixed Interest and a small amount of riskier assets. Suitable for investors who want to protect their capital, if possible, but increase the chances of better long-term returns. ethical portfolio 04 Invests in a moderate amount of Fixed Interest, with some Equity and Property as well. Suitable for investors who want to increase the chances of reasonable returns and protect capital, if possible. Rathbone - Ethical Bond % 0.5% Liontrust Sustainable Future Corporate Bond % -0.7% Kames - Ethical Corporate Bond % -0.8% L&G - UK Property % 8.5% Janus Henderson - UK Responsible Income % 4.1% Kames - Ethical Equity % 6.4% EdenTree - Amity UK % 8.1% Rathbone - Ethical Bond % 0.5% Liontrust - Sustainable Future Corporate Bond % -0.7% Kames - Ethical Corporate Bond % -0.8% L&G - UK Property % 8.5% Janus Henderson - UK Responsible Income % 4.1% Kames - Ethical Equity % 6.4% EdenTree - Amity UK % 8.1% Liontrust - Sustainable Future European Growth % -0.5% ET03 2.4% 21.9% % 5.1% ET04 2.2% 22.3% % 5.2% 10

11 ethical portfolio 05 Invests in low risk assets such as Fixed Interest and Property. The same proportion is invested in equities for a truly balanced portfolio. Suitable for investors who want to increase the chances of reasonable returns and still protect capital, if possible. Rathbone - Ethical Bond % 0.5% Liontrust - Sustainable Future Corporate Bond % -0.7% Kames - Ethical Corporate Bond % -0.8% L&G - UK Property Feeder % 8.5% Janus Henderson - UK Responsible Income % 4.1% Kames - Ethical Equity % 6.4% EdenTree - Amity UK 5 7.9% 8.1% Liontrust - Sustainable Future European Growth % -0.5% Royal London - Sustainable World Trust 5 9.9% 14.3% FP - WHEB Sustainability 5 9.6% 13.6% Janus Henderson - Global Sustainable Equity 5 8.8% 15.2% ethical portfolio 06 Invests in Fixed Interest, Property and Equities with the latter having a slightly higher content. Suitable for investors for whom returns are more important than capital protection. Rathbone - Ethical Bond % 0.5% Liontrust - Sustainable Future Corporate Bond % -0.7% Kames - Ethical Corporate Bond 8 0.8% -0.8% L&G - UK Property Feeder % 8.5% Janus Henderson - UK Responsible Income % 4.1% Kames - Ethical Equity % 6.4% EdenTree - Amity UK 5 7.9% 8.1% Liontrust - Sustainable Future European % -0.5% Royal London - Sustainable World Trust 5 9.9% 14.3% FP - WHEB Sustainability 5 9.6% 13.6% Janus Henderson - Global Sustainable Equity 5 8.8% 15.2% ET05 3.9% 26.5% % 6.5% ET06 4.3% 29.0% % 7.0% 11

12 ethical portfolio 07 Invests in Fixed Interest, Property and Equities with the latter having a moderately higher content. Suitable for investors who are comfortable with some investment risk and where returns are more important than capital protection. ethical portfolio 08 Invests mainly in Equities with a small proportion invested in Fixed Interest and Property in order to obtain diversification. Suitable for investors who are prepared to take some investment risk to improve long-term returns, where these are more important than capital protection. Rathbone - Ethical Bond 9 0.2% 0.5% Liontrust - Sustainable Future Corporate Bond 9 0.0% -0.7% L&G - UK Property Feeder % 8.5% Janus Henderson - UK Responsible Income % 4.1% Kames - Ethical Equity % 6.4% EdenTree - Amity UK % 8.1% Liontrust - Sustainable Future European Growth % -0.5% Royal London - Sustainable World Trust 5 9.9% 14.3% FP - WHEB Sustainability 5 9.6% 13.6% Janus Henderson - Global Sustainable Equity 5 8.8% 15.2% Rathbone - Ethical Bond 5 0.2% 0.5% Liontrust - Sustainable Future Corporate Bond 5 0.0% -0.7% L&G - UK Property Feeder 8 4.3% 8.5% Janus Henderson - UK Responsible Income % 4.1% Kames - Ethical Equity % 6.4% EdenTree - Amity UK % 8.1% Liontrust - Sustainable Future European Growth % -0.5% Royal London - Sustainable World Trust % 14.3% FP - WHEB Sustainability 5 9.6% 13.6% Janus Henderson - Global Sustainable Equity 5 8.8% 15.2% ET07 4.7% 31.0% % 7.4% ET08 5.7% 34.3% % 8.2% 12

13 ethical portfolio 09 Invests mainly in Equities with a minimal proportion invested in Fixed Interest and Property in order to obtain diversification. Suitable for investors who are happy to take more investment risk to improve long-term returns, where these are more important than capital protection. Liontrust - Sustainable Future European Growth % -0.5% L&G - UK Property Feeder 8 4.3% 8.5% Janus Henderson - UK Responsible Income % 4.1% Kames - Ethical Equity % 6.4% EdenTree - Amity UK % 8.1% Royal London - Sustainable World Trust % 14.3% FP - WHEB Sustainability 5 9.6% 13.6% Janus Henderson - Global Sustainable Equity 5 8.8% 15.2% ethical portfolio 10 Invests wholly in Equities. Suitable for those investors looking for the highest potential long-term returns, but prepared to accept the greatest investment risk and significant short-term falls as well. Invests in a balanced amount of Fixed Interest and Property which is equally weighted against the equity content of the portfolio. Liontrust - Sustainable Future European Growth % -0.5% Janus Henderson - UK Responsible Income % 4.1% Kames - Ethical Equity % 6.4% EdenTree - Amity UK % 8.1% Royal London - Sustainable World Trust % 14.3% FP - WHEB Sustainability 5 9.6% 13.6% Janus Henderson - Global Sustainable Equity 5 8.8% 15.2% ET09 6.2% 36.3% % 8.6% ET10 5.9% 37.0% % 8.7% 13

14 six monthly review Qualitative research As part of our research into the funds that make up the Portfolios (Equip, Enhanced Passive, Passive and Ethical), the investment management team meet with as many of the individual fund managers, team members and economists as possible. The following is a list of some of the fund managers, analysts and strategists our team has met with over the past six months: Alex Torrens - Fund Manager - BNY Global Leaders Audrey Ryan - Fund Manager - Kames Ethical Equity Aziz Hamzaogullari - Fund Manager - Natixis Loomis Sayles US Equity Leaders Blake Hutchins - Fund Manager - Investec UK Equity Income Ed Legget - Fund Manager - Artemis UK Select Georgina Hamilton - Fund Manager - Polar Capital UK Value Opportunities Guy Mountain - Fund Manager - Sarasin Sustainable Global Real Estate Equity Hugh Yarrow - Fund Manager - Evenlode Income James Mee - Fund Manager - Waverton Real Assets Johan du Preez - Fund Manager - M&G Japan Smaller Companies Justin Onuekwusi - Fund Manager - LGIM Multi Index Karen See - Fund Manager - Baillie Gifford Japan Income Growth Mark Barnett - Head of UK Equities - Invesco Perpetual UK Income Mike Pinggera - Fund Manager - Sanlam FOUR Multi Strategy Nandini Ramakrishman - Global Market Strategist - JP Morgan Neil Woodfoord - Fund Manager - Woodford Equity Income Sam Cosh - Fund Manager - F&C European Smaller Companies Scott Thomson - Fund Manager - Schroder Income Maximiser Simon Adler - Fund Manager - Schroders UK Value Stephanie Butcher - Fund Manager - Invesco Perpetual European Equity Income Stephen Anness - Fund Manager - Invesco Perpetual Global Opportunities Stephen Snowden - Head of Fixed Income - Kames Capital Ted Franks - Fund Manager WHEB Sustainability Toby Nangle - Fund Manager - Threadneedle Dynamic Real Return William Argent - Fund Manager - Gravis Infrastructure 14

15 six monthly review Important notes & general information The Ethical Portfolios one to ten were launched on the 1st April The calculation date for all performance figures quoted is the 31st August The funds shown reflect the current composition of the Ethical portfolios with effect from the 1st September, Past performance is not a guide to future investment returns. The value of investments and the income from them may fluctuate and you may not get back your original investment. All the performance information is based on unit holdings priced in GBP (Sterling) unless otherwise stated. Where a fund invests in securities designated in a different country to the fund, or where an underlying fund is denominated in a different currency, investments may rise and fall purely as a result of currency rate fluctuations. In light of the performance of certain sectors in the recommended asset allocation, our Investment Asset Allocation Committee has made a tactical decision to alter the model asset allocation of each portfolio for a short period. It is likely that their position on whether to be overweight or underweight in a particular asset class will fluctuate on a quarterly basis and may be adjusted to reflect any changes in market conditions. Fund percentage growth is calculated with income re-invested back into the fund net of tax. For fund or sector average benchmarks the percentage growth is also calculated net of tax. Performance is bid to bid. If you have moved portfolio during the quarter or have not been fully invested in the portfolio for the entire quarter then the performance figures quoted in the review will not be the same as you have experienced. Investors should note that inflation may occur over the duration of their investment and this may affect the future buying power of their capital. Funds with an emphasis on a particular sector or geographical area are exposed to a higher risk of volatility than a fund which is more broadly diversified. Emerging Markets tend to be more volatile than more established stock markets and therefore your money is at greater risk. Other risk factors such as political and economic conditions should also be considered. Where a fund holds a limited number of investments and one or more of those investments declines or is otherwise adversely affected, it may have a more pronounced effect on the fund value than if a larger number of investments were held. Smaller companies have an increased risk of price fluctuation than larger capitalised companies. Performance can vary depending on the dates on which switches are carried out and may be considerably different from that quoted. 15

16 INVESTMENT The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments. Beaufort Investment is the copyright and registered trademark of The Beaufort Group of Companies Limited. All rights reserved Beaufort Investment is a trading name of Beaufort Investment Management Limited which is authorised and regulated by the Financial Conduct Authority. Beaufort Investment Management Limited is registered in England Company No Registered Office: Kingsgate, High Street, Redhill, RH1 1SH. Beaufort Investment Management Limited is a wholly owned subsidiary of The Beaufort Group of Companies Limited which is neither authorised nor regulated by the Financial Conduct Authority. The Beaufort Group of Companies Limited is registered in England Company No Registered Office: Kingsgate, High Street, Redhill, RH1 1SH. We can supply this document in other formats including braille and large print. Please contact equiries@beaufortinvestment.co.uk