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Clear Thinking Sustainable investing: the time is now
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Clear Thinking
Sustainable investing:
the time is now
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Contents01 Introduction02 Our sustainable investment process03 Our sustainable funds04 Examples of our impact themes06 In conversation with the sustainable team08 About Heartwood09 How to invest/Contact us
heartwoodgroup.co.uk
01
Introduction
For us at Heartwood, sustainable investing means making you money while achieving better environmental, societal and governance outcomes.
Our consumption patterns are already reflecting a change for the better, from reusable mugs and bags-for-life to sustainable fashion and recyclable packaging. When we need to buy, we’re increasingly trying to do so responsibly, and buying responsibly now includes your investment portfolio.
The world is confronted by many challenges, such as climate breakdown, plastic pollution, scarcity of natural resources and inequality. By investing sustainably, your investments can contribute to a healthier planet and more sustainable societies.
The traditional narrative dictates that if you want to invest responsibly you must expect to compromise on any financial returns you receive. We’ve been investing sustainably for several years now, and over that time period, our sustainable investment strategies have performed as well as our unconstrained strategies, in terms of risk, return and cost. This proves to us that it’s just a myth that investing sustainably means giving up financial returns.
There can of course be no guarantees when it comes to returns from investing. The value of investments goes up and down, meaning how much your investments are worth will fluctuate over time, and you may not get back the original amount you invested.
Sustainable investing: myth-busting
Source: Heartwood
Performance is sacrificed
It is more expensive
You have to take more risk
It doesn’t make a difference
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Our sustainable investment process
There are three pillars to our sustainable investment process.
Incorporating the United Nations Goals
In 2016, the United Nations launched its 17 global goals for sustainable development. Folllowing collaboration between governments, businesses, civil society and individual citizens, the global goals on poverty, inequality, injustice and climate change were agreed, with the purpose of making positive changes in all these areas by 2030.
Our parent, Handelsbanken, is a signatory to the United Nations Principles for Responsible Investment (UNPRI) and we support international initiatives for corporate sustainability.
As an investment management business, we think we can help by offering clients sustainable solutions.
Source: United Nations
Impact investing
Impact investing is a vital part of our sustainable investment strategy. The goal is to make money by solving a specific problem, such as building social housing or renewable energy generation, or researching biotech solutions for hard-to-treat diseases.
Environmental, Social & Governance (ESG) integration
These are investment products that try either to invest in companies and governments that have high ESG scores, or to invest in companies and governments that can evidence commitment to improving their ESG scores.
Exclusions
We don’t invest in businesses that focus on cigarettes, alcohol or weapons or that engage in pornography or gambling.
1. 2. 3.
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Our sustainable funds
We offer four sustainable multi asset funds that are available across the risk/return spectrum. These funds have a number of benefits, including the absence of VAT on the annual management charge, and deferred capital gains tax while fully invested. In addition, the sustainable strategies may be accessed via segregated portfolios with minimum investment requirements.
Our sustainable portfolios are actively managed with the same investment process as our total return funds:
f Long-term asset allocation (strategic)
f Adjustment of the asset allocation based on market conditions (tactical)
f Portfolio implementation (investments)
The only difference is that in addition, we assess potential investments against our ‘three pillars’ sustainability process.
Each of our funds has a clear target return benchmark and aims to deliver a positive real return (that is, after the effects of inflation are removed) over a rolling five-year period. They are tailored to a specific risk profile, which means that they aim to produce returns based on the amount of risk that an investor is willing to take. Each fund therefore has a different mix of assets depending on whether it is a high or low risk. With these funds, our aim is to provide the building blocks you need to meet your risk/return objectives through sustainable investing.
The above does not constitute a recommendation to buy, sell or otherwise trade in any of the investments mentioned. Target return benchmarks are CPI+X% per annum over a rolling five-year period. They are calculated net of fees.
Weights refer to Strategic Asset Allocation of models as at 31 December 2018 and are subject to change. Source: Heartwood
Defensive Sustainable
Cautious Sustainable
Balanced Sustainable
Growth Sustainable
CPI+1%
CPI+2%
CPI+3%
CPI+4%
Expe
cted
retu
rn
Risk appetiteLower risk Higher risk
Equities Bonds Alternatives (e.g. Commodities, Property, Hedge Funds) Cash
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One of our thematic holdings is The Renewables Infrastructure Group (TRIG). TRIG is a pan European renewable energy infrastructure fund which invests predominantly in onshore wind and solar photovoltaic (PV) projects. The portfolio is highly diversified and produces a stable long-term revenue stream that is linked to inflation. Its main credit exposure is to national governments (via subsidies) and major utilities. TRIG has recently evolved to include battery storage in its portfolio.
Market opportunityThe renewable energy market is a rapidly expanding sector:
-500
0
500
1000
1500
2000
2500
3000
3500
4000
4500
2006-11 2012-17 2018-23
Terra
wat
thou
rs
Global power generation growth by technology
Coal and gas Wind Solar PV BioenergyHydropower Nuclear
Our investment We invest in TRIG which owns and operates:
34windfarms
28solar parks
Source: International Energy Agencyas at 8 October 2018
1battery storage
unit
Source: TRIG, Heartwoodas at 30 June 2019
Examples of our impact themes
Our sustainable strategies hold a variety of impact investments.
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Market opportunityAnother of our impact investments is the Threadneedle Social Bond Fund. This fund lends to companies and projects that support social and economic development in the UK, whether that is by providing affordable housing, generating jobs in less affluent areas or in providing transport infrastructure, amongst others. Threadneedle partner with Big Issue Invest to marry financial returns with positive social outcomes.
Our investmentWe invest in the Threadneedle Social Bond Fund which finances projects in the following sectors:
Housing and property Utilities and the environment Health and social care
Education learning and skillsTransport and communication Financial inclusion
Employment and training Community service
19%
17%
13%12%
12%
12%
10%5%
Source: Threadneedle, Heartwood2018 annual report
These are just two of our impact investments. Others include biotechnology, smart materials and water management. We know that by investing sustainably, investors can make a very real and measurable difference to the world around them.
The above does not constitute a recommendation to buy, sell or trade in any of the investments mentioned.
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In conversation with the sustainable team
Our sustainable strategies are led by Investment Managers Ben Matthews and Matt Toms.
Ben: We wanted to offer real choice to our clients by adding a range of sustainable multi asset (diversified) strategies to our core total return products. We could see that sustainable investing was no longer a niche pursuit and had struck a chord with many clients, who expected their investment decisions to take account of the issues they care about. This was particularly the case among younger investors.
We began our research in 2013 and within two years had sourced sufficient investment opportunities to set up the portfolios, covering a full range of assets from shares and bonds to property and alternatives. The universe of investment opportunities continues to grow and we’ve added new instruments to the portfolios as they have become available. Examples include regional equity SRI (socially responsible investing) ETFs (exchange traded funds), sustainable/green bond funds and sustainable alternatives, such as renewable infrastructure and social housing.
How did the idea for diversified sustainable funds come about?
Matt: When we look for investments, we look at the potential for strong financial returns together with the impact around key social and environmental issues, such as climate or demographic changes. As we build our portfolios and move through our ‘three pillars’ investment process, we look to:
f Negatively screen out businesses that make cigarettes, alcohol or weapons, or engage in pornography or gambling.
f Invest in companies or governments that are looking to improve their ESG impact.
f Invest in solutions-based endeavours that solve a problem and have a compelling risk/return profile.
What do you look for in an investment?
Ben Matthews
Co-manager, Sustainable strategies
Matt Toms
Co-manager,Sustainable strategies
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Matt: Just as a sustainable approach can be achieved without compromising on performance, sustainable portfolios can be managed without increasing the risk and cost of the underlying investments. This is especially true as the investment space evolves to include ever more cost-effective portfolio building blocks.
There are obvious parallels between prudent corporate behaviour and sustainable principles, and a growing body of evidence suggests that sustainable business practices can create a range of benefits. These could include lower borrowing costs, improved operational performance, and better risk management.
Taken together, this can also have a positive influence on share prices. In addition, for investors, sustainable credentials can offer a sense of assurance in the potential strength and longevity of their underlying portfolio investments.
Does it cost more to invest sustainably?
Ben: The performance of our sustainable strategies since inception demonstrates that you do not have to give up returns in order to invest sustainably. Indeed, the three-year track records (to 31 May 2019) for our initial models - Sustainable Balanced and Sustainable Growth - show performance slightly ahead of our core Balanced and Growth multi asset strategies.
While past results should not be relied upon as a guide for future performance, we have high conviction in the credentials of our robust sustainable approach.
How have the sustainable strategies performed?
Matt: As early-stage innovators in the sustainable multi asset space, we believe we have successfully met the challenge we set ourselves back in 2013: to create the first wealth proposition offering sustainable multi asset strategies across the range of risk-return profiles.
We are confident that our industry-leading sustainable solutions are well positioned to meet the needs of existing and future investors. With our three-year performance track record, we look forward to conversations with existing and prospective clients and to growing the assets across all the funds.
Where are you on the journey with these funds?
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About Heartwood
Heartwood Investment Management is the asset management arm of Handelsbanken in the UK.
f Heartwood Investment Management - a specialist, award-winning multi asset business, with a well-recognised brand within the industry.
f Over 25 years’ experience managing investments for individuals, corporates, trusts and charities.
f £3.8bn assets under management and administration (AUMA) as at 30 June 2019.
f Heartwood was established in 1988 and acquired by Swedish bank Handelsbanken in 2013. This marked the joining of a similar set of cultures and beliefs with an absolute and complete focus on client outcomes.
Sustainable team biographies
Ben Matthews
Matt Toms
f Co-manages Heartwood’s Sustainable Strategies
f Researches UK and US equity investments
f Previous experience at Canaccord Genuity Wealth Management
f BA History at Durham University
f Professional qualifications include: CFA charterholder
f Named one of Citywire’s ‘Top 30 under 30’ of emerging wealth talent in 2019
f Co-manages Heartwood’s Sustainable Strategies
f Researches fixed income investments
f Previous experience at RBC Capital Markets
f BSc Economics at London School of Economics, MSc Business (Behavioural Science) Warwick Business School
f Professional qualifications include: IMC, PCIAM, CIPM, CFA charterholder
f Named one of Citywire’s ‘Top 30 under 30’ of emerging wealth talent in 2019
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How to invest
f Handelsbanken Wealth Management clients can invest in the sustainable funds via Heartwood’s platform.
f The sustainable funds are also available on Self Select for Handelsbanken Wealth Management clients.
f Clients of Heartwood’s Partner Firms can find the sustainable funds on external platforms.
Contact us www.heartwoodgroup.co.uk
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To find out more please get in touch:
London OfficeNo.1 KingswayLondonWC2B 6AN
Tel: 020 7045 2600
www.heartwoodgroup.co.uk
Heartwood Investment Management (Heartwood) is a trading name of Heartwood Wealth Management Ltd, which is authorised and regulated by the Financial Conduct Authority (FCA) in the conduct of investment business, and is a wholly owned subsidiary of Handelsbanken plc.
This document has been prepared by Heartwood Investment Management for clients and/or potential clients who may have an interest in their services. Nothing in this communication constitutes advice to undertake a transaction and professional advice should be taken before investing. Any observations are Heartwood’s commentary on markets and its own investment strategy. This material is not investment research and the content should not be treated as an offer or invitation to buy or sell securities.
Portfolios may include individual investments in structured product, foreign currencies and funds (including funds not regulated by the FCA) which may individually have a relatively high risk profile. The portfolios may specifically include hedge funds, property funds, private equity funds and other funds which may have limited liquidity. Changes in exchange rates between currencies can cause investments of income to go down or up. The value of any investment and the income from it is not guaranteed and can fall as well as rise, so that you may not get back the amount originally invested. Past performance is not a reliable indicator of future results.
For Heartwood Multi Asset Funds: The Authorised Corporate Director is Link Fund Solutions Limited. The Registrar is Link Fund Administrators Limited. The Investment Manager is Heartwood Wealth Management Limited.
Registered Head Office: No.1 Kingsway, London, WC2B 6AN. Registered in England Number: 4132340
Part of the Handelsbanken Group.
