SustainAbility: Three years of Royal London Sustainable Growth fund

Sebastien Beguelin, Senior Fund Manager of the Royal London Sustainable Growth fund, reflects on the first three years of the fund, navigating an uncertain world and opportunities that investing in the sustainable space can offer. 

Three years ago, we added the Royal London Sustainable Growth fund to our existing Sustainable range. We launched this as a sustainable mixed asset fund targeting a strategic asset allocation of 75% global equities and 25% sterling corporate bonds to complete our existing range, taking it to nine funds. It is rated risk level 6 by Defaqto and we believe it can help clients meet their long-term investment objectives.  

This is a good opportunity to reflect on the last three years, how we navigate investing in an increasingly uncertain world and how we believe a sustainable-first approach can deliver long-term performance for investors. 

An increasingly uncertain world

The last few years since the pandemic have seen a tremendous amount of change in markets relative to the 2010s. It’s not that nothing happened in the 2010s, but few events truly altered the investment environment of low growth, low inflation and low interest rates. This decade, however, has been characterised by uncertainty and volatility. Financial markets are moving at a faster speed driven by passive, algorithmic trading and there are numerous geopolitical forces trying to reshape the world. The US administration is trying to bring manufacturing onshore using tariffs but faces a challenging fiscal situation. China is determined to become the leading tech power but faces incredible demographic challenges. Europe is facing security threats at the same time as the US is questioning its involvement in NATO but is responding by becoming more unified and increasing investment notably from Germany. Further, Japan is emerging from 40 years of deflation. Meanwhile against this volatile geopolitical backdrop technology is disrupting entire industries.

The old-world order is over, but investors shouldn’t lament it, they should embrace it. We have always said in order to be a good journalist, you need to be a pessimist and to be a good investor, you need to be an optimist. As optimists, we see the opportunity set expanding. This is no longer a world of US technology only, it’s a world of European industrials, Latin American e-commerce, US reindustrialisation, Japanese services and Taiwanese semiconductors. This is a world where innovation is accelerating as AI has the potential to drive significant productivity improvements – surgeries are becoming safer thanks to robots, energy grids are becoming more resilient, and people have access to financial services.

Investors often ask us: Is sustainability dead or if more politically correct, is it less relevant in a fast moving, disrupting world? Our answer remains the same – all trends we are seeing are well aligned with sustainability and our objectives of investing in companies making the world cleaner, healthier, safer and more inclusive. So, can we buy any company vaguely considered as sustainable? Of course not. It is true the many relevant trends are aligned with sustainability and the opportunity set is expanding but to benefit from these, we believe a disciplined long-term approach is required.

all trends we are seeing are well aligned with sustainability and our objectives of investing in companies making the world cleaner, healthier, safer and more inclusive

A long-term approach

The fund looks to invest in companies or issuers that make a positive contribution to one or more of our four Sustainability Themes (clean, healthy, safe and inclusive). But in simple terms, our approach can be summarised as investing in companies that ‘do good’ because we believe they will do better and be more resilient over the long term. To identify them, we follow a systematic process. We then hold them – typically for 3-5 years – and for our mixed asset funds we maintain a stable asset allocation. We have been following this process for more than two decades. This is how we make sense of the short-term noise – we don’t look to time the market, we don’t follow fashionable trends, and we constantly look for attractively valued high quality companies from both a sustainable and financial viewpoint. Our process is our compass to navigate this increasingly uncertain world. It is reassuring to know that our sustainable fund range has adopted the SDR focus label, and that we have maintained our core investment approach and philosophy that our clients have come to expect.

The world is becoming more uncertain and complex, but we believe that a disciplined approach can help investors navigate the volatility and seek to generate attractive returns over the long-term. The journey will not be smooth sailing, there will be crises, market panics, recessions along the way, but when we look at our portfolios today, we see world class sustainable companies that are well positioned to deliver value for shareholders. These last three years have been a good test – we thank our investors for their support.

The Fund focuses on the sustainability of the products and services of the companies it invests in, as well as their standards of environmental, social, governance (“ESG”) management, alongside financial analysis. The investment approach is fundamentally based on positive screening; identifying companies that are making a positive contribution towards a cleaner, healthier, safer and more inclusive society, through assessing both what a company does and how it does it, and through active engagement to encourage continual improvement. The fund will not invest in companies that undertake business activities deemed to be detrimental to society and that breach our Do No Significant Harm principle. Further details of the Funds' Sustainable Investment process can be found in the ethical and sustainable investment policy here.

For professional investors only.  This material is not suitable for a retail audience. Capital at risk. This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.