Sustainable investment funds have offered scant protection for investors amid the general sell-off in most asset classes in 2022.
Will Mcintosh-Whyte, who runs the sustainable multi-asset fund range at Rathbones, says the issue is that “many people invested in assets that are sustainable, but traded at very frothy valuations.
"Many people invested in those because of what the companies did, or promised to do. Companies that were untested business models. People were investing in hope and hype. And that has reversed this year. Some people bought based on the story rather than the financials. And those stories have been hard to explain to clients more recently.””
He adds: “When we launched our sustainable fund range in 2021, we told prospective clients that we wanted to buy good companies that were also sustainable, rather than sustainable companies alone. And when we launched, some people said we didn’t look like a typical sustainable investment fund.
Sandra Crowl, head of stewardship at Carmignac, says investors should not abandon the long-term themes and strategies in which they are invested, but adds that companies with lower levels of debt are likely to do relatively better in the current market conditions, as they are shielded from higher interest rates.
Although his own funds do not invest in large energy companies that have operations in both renewable energy and fossil fuels, many sustainable investment mandates do invest in this area, and Mcintosh-Whyte says those companies will benefit as a result of the market re-considering the issues around global energy supply.
Crowl agrees that the opportunities may be “in the supply chains” of the companies that are popular right now in the ESG universe.
She adds that she continues to believe renewable energy represents an investment opportunity, as "the current energy crisis reinforces the need to change the energy mix".
Duncan Goodwin, who runs the Global Sustainable fund at Premier Miton, says: “We see an accelerating pace of innovation among many of the themes we are investing in, whether that be renewable textiles, online education, renewable fuels or micro lending, to name but a few.
"In addition to investing in a broad range of themes, across many different regions, we believe taking a disciplined approach to valuation also helps to diversify a portfolio. Within this context, new opportunities this year have presented themselves in a broad range of sectors.
"Cyber security is a good example of a theme we have been tracking for some time and we’ve seen opportunities emerge with the general sell-off in the tech sector.”
Mcintosh-Whyte says that while themes can be identified as promising – he cites hydrogen as an energy source for an example – "the harder task is to identify which of the companies within a particular theme will be the winners.
