Last week Asset Allocator looked over our database to see how DFMs’ preferences for UK equity growth funds had changed over time.
While we noted a general malaise towards the sector, with some significant sell-offs over the past five years, one fund has fought against the tide.
Royal London Sustainable Leaders is one of the few UK equity funds to have seen demand increase over the period, having added three new buyers in our database since mid-2020, taking its total to four.
Couple this with our ESG portfolios, in which Royal London Sustainable Leaders dominates the UK equity sector with 11 buyers, and what you end up with is a very popular offering.
The fund is £500mn in size and has been run by manager Mike Fox for 19 years. It has outperformed the benchmark over five years but struggled in 2022, perhaps owing to the energy price spike that other less ESG-oriented funds will have capitalised upon.
Hawksmoor is a fan of the fund, and senior research analyst Robert Fullerton gave us his thoughts.
“The team’s investment process was key; the fundamental analysis gives equal weight to the sustainability and financial criteria of a business,” he says.
“We liked the UK bias, but the team can still look overseas in sectors where the UK market doesn’t provide as high quality, choice or opportunity. Another attractive element was the responsible investment team at Royal London.”
Indeed Royal London’s focus on sustainability is perhaps less common in the industrial-heavy FTSE 100, whose basket of traditional, old-economy firms has seen the index rarely score highly on ESG ratings.
Unsurprisingly then, the fund is most heavily composed of financials and consumer goods, with Astrazeneca, Relx, and the London Stock Exchange Group its top three holdings.
Hawksmoor owns the fund in its balanced portfolios and views it as a regular UK equity fund, with sustainability just an extra feature.
“It does have a quality tilt so it’s not the cheapest fund available, but it has strong growth and returns across a variety of markets,” says Fullerton, although he notes that the fund has become quite large, and sometimes this can have an effect on future performance.
More broadly, however, we recently covered the significant sell-offs of the UK’s once-most popular growth funds, Liontrust Special Situations and Lindsell Train UK Equity, reflecting a wider shift among allocators away from domestic equity.
Over the course of 2023, average allocations to UK equities in our database has gone down from 15.3 per cent to 14.10 per cent. If you go back into 2021 this fall is even steeper, from 17 per cent.
