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Trustnet finds that 3.6% of UK equity funds have both a top FE Fundinfo Crown rating and a top MSCI ESG fund rating.
Investors are increasingly ranking environmental, social and governance (ESG) factors alongside performance when choosing funds but there are only nine UK funds that combine top ratings for both their track record and sustainability, Trustnet research shows.
In this series, we’re revealing how many funds have both five FE FundInfo Crown ratings – which place them in the top 10% of funds for investment performance in recent years – and AAA status under the MSCI ESG Fund Ratings – which examine ESG scores. Underlying holdings, funds’ ESG momentum and exposure to worst-rated companies.
Across the investment association universe, there are 2,205 funds that have both the FE fundinfo Crown Rating and the MSCI ESG Fund Rating but only 2.1% of them have been awarded Five Crowns for their performance and AAA status from MSCI on their ESG trend.
Here, we focus our attention on three main UK equity sectors: IA UK All Companies, IA UK Equity Income and IA UK Small Companies. The headline point is that only nine funds – or 3.6% of the 252 that are eligible – have top ratings for both performance and ESG.
UK equity fund distribution by FE fundinfo Crown Rating and MSCI ESG Fund Rating
Source: FE fundinfo, MSCI
Of note is that UK equity funds stack up very well for ESG as 96.8% of the funds we looked at have an MSCI ESG Fund Rating of AA or AAA – making them ‘ESG Leaders’ under MSCI’s methodology. is The remaining 3.2% all have an A rating, which is the top end of the ‘ESG Average’ group.
When it comes to individual UK funds with five FE fundinfo crowns and AAA ESG ratings from MSCI, the most recognizable name is probably the £3.1bn Royal London Sustainable Leaders Trust, led by FE fundinfo Alpha Manager Mike Fox, George is Crody and Sébastien Beguelin.
The investment process used by Fox and his team has been in place since 2003 and revolves around finding best-in-class companies that aim to contribute to a more sustainable society, while avoiding controversial areas of the market. Accordingly, MSCI rates 81% of its underlying holdings as ‘ESG Leaders’ while none are classified as ‘ESG Laggards’.
Analysts with FE Investments said: “The team’s investment style brings something different to UK equity funds as it combines sustainable principles with in-depth company financial analysis. In addition, the fund differs from its ethical peers, who mainly focus on negative screening, while this team goes a step further and screens to isolate companies that contribute to the transition to a sustainable world.
“As such, it is a very good candidate for investors who particularly want exposure to companies that are making a positive impact on society or operating in a sustainable manner.”
Royal London Sustainable Leaders v Sector Performance over 10 years
Source: FE Analytics
The only other fund on the shortlist with a dedicated sustainability approach is the £126m Ninety One UK Sustainable Equity Fund, run by FE fundinfo Alpha manager Matt Evans.
Evans has worked on ESG strategies for some time – previously running the Threadneedle UK ethical fund – and joined NinetyOne in 2017 with the aim of launching NinetyOne UK Sustainable Equity.
The process behind the fund seeks companies that align with 10 sustainability themes, including accessible finance, sustainable infrastructure, climate change and clean energy, and ecosystem protection. MSCI says 58% of its holdings are ‘ESG leaders’.
Other large funds with five FE fundinfo crowns and AAA ESG ratings, but not dedicated to sustainable strategies, include Martin Walker’s £1.1bn Invesco UK Opportunities Fund and Michael Clarke and Rupert Gifford’s £578m Fidelity Moneybuilder Dividend Fund.
The nine funds shortlisted in the research are CT UK Equity Alpha Income, ES R&M UK Equity Income, Fidelity Enhanced Income, IFSL CAF UK Equity and Invesco Income & Growth.
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