Liontrust’s flagship ESG fund has had a challenging start to the year, with bets on tech and other growth sectors weighing heavily on performance.
Citywire A-rated Simon Clements, who runs the £2.8bn Sustainable Future Managed strategy alongside Peter Michaelis, said that the worst performers in 2022 were holdings that had performed the best during the height of the pandemic.
Stocks such as PayPal and DocuSign, which were ‘big beneficiaries of a lockdown economy’ have had a challenging time more recently, he noted. The fund continues to hold a 19% allocation to tech, however, and he said he remains confident in the sector.
‘Technology is relevant across the whole economy. We invest in applications across industrials, autos, transport and construction. The application of technology still has many years to go,’ he said. ‘We’re less interested in pure tech areas like social media, as it’s ripe for a selloff.’
Alphabet is the company we get the most questions
about, it’s the only Faang stock we think is investable
from a sustainable point of view
Simon Clements, Liontrust
The fund has lost 7.4% compared with a sector average gain of 0.1% over the 12 months to the end of April. Over three years’ performance is far more impressive, with a 25.6% return compared with the peer group’s 17.6% return.
Even with the challenging Q1 performance, the fund has still managed to gain net inflows of £133m, year-to-date.
Alphabet's ethical credentials
One of the largest positions in the fund (2.8%) is Google parent Alphabet. The mega-cap tech firm has faced questions over its ESG credentials due to concerns about its ethics, data privacy and security.
As a result, it is one of the lower-rated stocks in Morningstar’s Sustainability Rating universe – scoring three out of five, compared with many holdings in Clements’s portfolio attaining the top rating.
‘Alphabet is the company we get the most questions about, it’s the only Faang stock we think is investable from a sustainable point of view,’ he said.
‘Google’s core product is about accessing information, and it’s free for about 85% of people that use it – and we think that’s a positive thing. From an environmental point of view, it’s the biggest purchaser of renewable energy in the world.’

The fund manager did concede he shared concerns about subsidiary YouTube, the firm's payment of corporation tax, and its governance structure. However, he felt that on balance the stock was justified in an ethical portfolio.
The tech giant’s share price has been on a volatile ride. Year-to-date it is down by nearly 22%, however over a year the stock is still up by 3.3%.
He further questioned Morningstar’s ESG rating criteria, saying he remained broadly sceptical about the still-fledgling ethical ratings industry.
‘We’ve been doing this [ESG analysis] for 20 years – longer than Morningstar or MSCI. In terms of the knowledge base around the table, we far outweigh them.
‘There are limitations to what the ratings providers can do as they’re trying to rate everything, while we’re only looking at the stocks we’re interested in – so we can do more due diligence.’
Payments will be stagflation proof
Another top holding in the fund is Visa, with a 2.5% allocation. Although Clements is concerned about stagflation, he believes that card payments will continue to be resilient during tough times.
‘Visa tends to benefit when you spend money on your petrol or your food – you’ll tend to use your card,’ he said. ‘Relative to the online payments companies, who just do e-commerce, this year people have actually been spending less online and more on essentials.’
He added that the firm was able to charge more for overseas card payment, and that it would benefit from a return to global travel. Over the past year Visa’s share price is down 11.5%.