Bryn Jones, head of fixed income at Rathbones, discusses how he has managed his £2.5bn Ethical Bond fund under strenuous market conditions.
The strategy, which the Citywire AA-rated manager runs alongside Noelle Cazalis, was launched almost 20 years ago, before the creation of the UN’s Sustainable Development Goals (SDGs). It has several exclusions from tobacco, coal, weapons manufacturing, oil, mining and animal testing, and looks to invest in companies that make a positive contribution to society or the environment.
However, the Rathbones manager feels that the greenwashing criticism of some funds is somewhat unhelpful.
‘Ethical investing is a bit like religion. There are many religions in the world, and they all have the same moral compass of where they want to get to, but by getting there they do things very differently,’ Jones said.
‘It’s very dangerous for us to go around telling other investors that they might be subject to greenwashing, when actually the investment process that’s put in place is just a different means to get to the same goal that we’re trying to achieve.’
ESG demand remains high
Despite soaring inflation and the ongoing war in Ukraine, Jones continues to see a high demand for ESG.
‘The fund’s performance has dipped on absolute terms, naturally, with gilt yields rising at their fastest pace in history,’ Jones said. ‘The concern around inflation and the war in Ukraine is causing credit spreads to widen, which has also meant that our absolute performance is down.’
Over the past year the strategy has lost 5.2% compared with a sector average loss of 4.7%. The fund still managed to attract £534m of net inflows over the year however, although investors did pull £25m out in March.
Despite this, the fund’s triple-B focus targets low-yielding assets that make returns over longer periods of time, rather than over the short term. Over a three-year period the fund has returned 6.8%, outpacing the peer group’s 4.7% return.
‘What would really damage us would be destruction of capital,’ Jones said. ‘And that comes from either significant alphas, which we've not seen, or a deep, deep recession.’
Although yields have continued to rise due to inflation pressures, Jones believes his fund is positioned well relative to his peers, due to its short duration focus.
‘I didn’t feel there was a significant need to reduce the credit risk,’ he said. ‘If anything, fortune favours the brave in periods like this, and buying a 10-year credit in the portfolio, yielding 5% or 6%, is relatively attractive. Arguably, in the short term, with real yields negative and inflation quite high, that doesn't sound too attractive. But you've got to remember, inflation is an annual figure.’
In this podcast, Jones also discusses his investment strategy, how he avoids greenwashing, and the changes he has made to his portfolio to counter inflation and the effects of the war in Ukraine on the market.