Sustainability continues to be one of the biggest growth areas for equity funds despite the volatility in markets. In 2022 net inflows into this area were over $3bn, according to Morningstar.
But this level of growth leads to a high level of overlap in investors’ holdings. As well as that, investors are becoming increasingly wary of badly thought-out approaches and greenwashing. So, the question is, which funds bring something truly different to the table?
Louisiana Salge, head of sustainability at EQ Investors, has a good idea. She highlighted UBP’s Biodiversity Restoration fund – managed by Citywire + rated Victoria Leggett, AA-rated Charlie Anniss and Adrien Cambonie.
This global equity portfolio, launched in late 2021, aims to protect and restore species and natural habitats on the planet. Salge believes it stands out from other pickings in the growing biodiversity fund space – many of which she sees as more general environmental equity plays that have not fully thought through the thematic drivers.
Funds with a climate change remit often tend to focus on environmental solutions providers and particularly the renewables – solar, wind turbines and so forth – while glossing over the carbon foot print that is required to create those things.
Paris Jordan
Senior multi-asset analyst at Waverton
‘UBP has created an impressive thematic framework for investing. For example, one of the biggest devastators of biodiversity is mining, so their circular economy theme contains tech companies that aim to ensure less mining is needed.’
Among the areas being targeted in line with the fund’s restoration goal is the food and agriculture industry – one of the biggest creators of biodiversity loss.
‘The fund invests in businesses that are disrupting the industry, such as organic and precision farming,’ she said.
Salge also drew attention to the fund’s oversight structure, which involves a biodiversity committee that includes academics and NGOs: ‘They have direct input to the investment decisions – another way the fund sets itself apart from greenwashing.’
Lean and green
Another noteworthy pick from EQ is the Edentree Green Infrastructure. Launched in September 2022, it is managed by Tommy Kristoffersen.
Salge said: ‘We like this because it’s one of the few pure-play renewable infrastructure funds. Its focus is renewable energy generation, storage, and natural capital such as sustainable timber and agriculture.’
The fund invests in listed infrastructure and has a significant portion of assets in the UK.
‘Many of the listed-infrastructure funds on the market don’t have the purity of this portfolio, which is why we became a seed investor,’ Salge said.
Next up: the GMO Climate Change fund, which senior multi-asset analyst at Waverton, Paris Jordan, lauds as a new and differentiated offering in the UK market. Run by GMO managers Lucas White and Tom Hancock, the fund has total assets of $958m, as of the end of January.
Although the fund has a track record since April 2017, it is only now gaining attention in the UK market, Jordan noted. Waverton currently holds a position in its MPS portfolios.
‘Funds with a climate change remit often tend to focus on environmental solutions providers and particularly the renewables – solar, wind turbines and so forth – while glossing over the carbon footprint that is required to create those things,’ she said.
Though the GMO fund too has exposure to these solutions providers, it also invests along the whole value chain.
‘Their stance is that if we want wind turbines or EVs, we need the materials to build them, and it’s better to address that problem as part of their process rather than sidestep it.’
As a result, the portfolio contains high-quality commodity plays and companies involved in sourcing raw materials. On top of that, the fund offers short-term exposure unlike other solutions-provider-focused portfolios, which tend to have a bias towards long-duration growth.
‘The fact that GMO has cyclical exposure as well as growth makes it less likely to be caught out in times of market rotation.’
