Sustainable and ESG-focused funds should sit at the heart of investors’ long-term portfolios now, with the seismic shift seen towards such mandates in recent years unlikely to be reversed, Adrian Lowcock at Willis Owen has said.
Lowcock, head of personal investing at Willis Owen, noted the investment style had outstripped non-ESG approaches over three and five years, with a five-year return of 94.49% for the MSCI ACWI ESG leaders index versus the MSCI ACWI index return of 93.75%.
While they may have been satellite funds in the past, meeting the desire of some individuals who wanted to invest in line with their ethics and principles, Lowcock says these are no longer “nice to have” investments.
“These funds are core holdings now, with over £61bn in responsible funds in February this year, nearly double the £34.3bn from a year earlier (February 2020). Whereas previously, ESG was a secondary consideration, a nice to have tilt to portfolios, the world has been changing. A focus on companies which do less harm to the environment, be that alternative energy, greener food production or waste reduction, are here to stay, and crucially, they are also rewarding investors,” he said.
“Clearly the COVID pandemic has accelerated an existing trend as people took lockdown as an opportunity to revaluate their lives and could witness first-hand the effect human activity was having on their local environment.
“As with any investment, there will be periods of underperformance. For example, with vaccines being rolled out investors have focused on the end of the pandemic and there has been a shift to value and recovery stocks, which includes oil and airline industries that typically don’t feature in ESG-focused funds.”
Lowcock believes the longer-term outperformance of sustainable, ESG and ethical funds will continue from here, with many of the old-guard economy stocks likely to struggle unless they change.
“ESG investing is now a huge part of mainstream investing. The development of the fourth digital age is also supporting progress in ethical investing as new technologies make opportunities more cost effective, and the use of data means companies can better track the impact they have, and also be more accountable for their behaviour.
“However, where previously ethical funds would have avoided some sectors and stocks outright, these days fund managers are willing to engage with companies and management to help influence and support change.
“These trends are not one, three or even five-year ones. They are here to stay, and investors who are not considering them are going to miss out over the long-term.”
ASI UK Ethical Equity – Manager Lesley Duncan, follows a strict ethical approach screening companies on both positive and negative criteria. The process means some sectors such as tobacco, weapons and pharmaceutical (animal testing) are excluded in favour of companies that promote equal opportunities, strong ethical governance and support the local community.
Royal London Sustainable Leaders – Mike Fox is a veteran of sustainable investing and focuses on companies which have a positive effect on the environment, human welfare and quality of life. He also invests in companies where the management are making above-average efforts in corporate responsibility.
Stewart Investors Worldwide Sustainable – Nick Edgerton and David Gait carry out fundamental analysis with a particular focus on sustainability of company earnings and business models. The portfolio tends to have a bias to defensive growth companies due to the focus on high-calibre management and healthy balance sheets.
Adrian Lowcock, Chris Tuite
Head of personal investing Director & Head of Consumer Finance
Willis Owen MRM London
07849 846387 020 3326 9925
Notes to Editors
Willis Owen is one of the UK’s leading online investment service providers. Founded more than 20 years ago Willis Owen now has around £1bn of funds under management and has acted as an intermediary for over 150,000 customers and hundreds of millions of pounds worth of investments.
Willis Owen Limited is authorised and regulated by the Financial Conduct Authority.
 Total Return in Pounds Sterling to 31st March 2021.