Liontrust Sustainable Future Funds - Annual Review 2017 - Page 6

Our team scours the globe for the best investments
exhibiting these qualities. We then construct resilient
portfolios of these with the aim of delivering strong
returns while minimising volatility.
Identifying emerging trends and long-term themes is
the cornerstone of our process. From the development
of personalised medicine to the transition to lower
carbon fossil fuels, we are fascinated by the wideranging trends that are changing the world and the
opportunities they create. 30 years ago, the IBM PC XT
was the pinnacle of technology for example; today, we
have the iPhone, which is not only much more powerful
but can also fit into your pocket and is half a million
times more energy efficient.
Among the equity funds, for example, the SF Global
Growth delivered 18.8% versus 11.8% from the
MSCI World Index and 14.0% from the Investment
Association’s Global sector.* Longer term, our funds
across the asset classes have outperformed their IA
sector average over three, five, seven and 10 years to
the end of 2017. Six out of eight were first quartile over
five years.**
ustainable investing is not only for those who
want their assets to “do good”; there is a
compelling case for all investors taking this
approach. In a fast-changing world, we believe
the companies that will thrive are those that focus a)
on improving people’s quality of life, be it through
medical, technological or educational advances, b)
on driving efficiency in the use of increasingly scarce
resources and c) on building resilient, prosperous and
stable societies.
We can also point to advances in healthcare that have
led to dramatic improvements in life expectancy. For
instance, if a man was diagnosed with prostate cancer
30 years ago, he had a less than 50% chance of living
more than five years; today the odds are around 90%.
Investment performance
How does this translate into an approach with potential
to outperform mainstream funds over the long term?
Stocks in our portfolios exhibit three characteristics:
excellent management and core products or services
that are making a positive contribution to society; strong
growth prospects; and a business model that enables
them to grow profitably from these trends and generate
competitive returns.
Well-run companies whose products and operations
capitalise on transformative changes can benefit
financially. In short, we believe that identifying these
powerful trends and investing in exposed companies
can make for attractive and sustainable investments.
We always compare the performance of our strategies
to conventional sectors and where applicable to
relevant mainstream indices and 2017 was a strong
year in this regard, as all our funds (equity, fixed
income and managed) were first quartile versus their
IA sector average.
Sustainability is also at the heart of the investment
process used to manage our fixed income portfolios. This
approach has been key to the strong investment returns
and lower levels of volatility produced by both fixed
income funds managed by the team.
Specifically, our analysis helps to avoid areas of the
market where risk is underestimated. For example
within the utility sector, we favour power networks over
large incumbent power generators and companies
with significant exposure to nuclear power as both are
exposed to the headwinds of increased regulation.
Our investment process identifies high-quality names
within the banking sector, whereby we select banks
that focus on retail banking (Coventry Building Society,
Lloyds, BNP Paribas) and avoid those that generate a
significant proportion of their revenues from investment
banking (Deutsche Bank and Goldman Sachs).
This approach serves to reduce the risk and volatility
within our bond funds, while also adding to performance.
Deutsche Bank has underperformed over recent years,
for example, as fixed income investors continue to
demand a premium for the added risk associated with
its strategy.
*Source: Financial Express, 31.12.16 - 31.12.17, primary share class, total return, net of fees and income reinvested. **Five year data is not
available for Sustainable Future Cautious Managed Fund and Sustainable Future Defensive Managed Fund due to the launch date of the portfolio.
Past performance is not a guide to future performance, investments can result in total loss of capital. Please refer to
the Key Risks section for more information.
6 - Liontrust Sustainable Future Funds: Annual Review 2017
Liontrust Sustainable Future Funds: Annual Review 2017 - 7

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