This blog series begins here.
In my last blog post, I looked at portfolio balance. This post is about funds. It’s worth noting that funds are not the only thing you can invest in with a SIPP – you can also invest in corporate property, including land, or in shares; or, if you have a SIPP with Abundance, you can invest, among other things, in ‘green and social projects’. Funds aren’t necessarily the best option, they’re just an easy place to start.
To find out more about funds in general, what the different kinds of funds are etc, I recommend the excellent FutureLearn/OU course Finance Fundamentals: Investment Theory and Practice. There’s also now a FutureLearn course on Impact Investing.
Where to Find Funds
Before evaluating funds to see if they are climate friendly, you need to first find possible candidates. Here are some lists of ethical funds:
- The ii (interactive investor) ACE 30 list (30 funds which avoid, consider or embrace on ethical grounds)
- The ii Ethical Investments Long List
- Example portfolio illustrated by ThePath, on their website homepage
- The Ethical Consumer list of ethical funds (paywall).
Of these, only ThePath portfolio has funds specifically picked with the climate in mind. ThePath say they are ‘financial advisers that grow your wealth and help to save the planet’.
You might also find funds to consider by getting advice from an IFA (Ethical Consumer has a list) or by searching in fund lists for words like ‘Sustainable’, ‘Climate’ or ‘Impact’.
Digging in to the Detail
Once you’ve identified a fund that could be of interest, it’s useful to know:
- whether it’s available for you to invest in
- the ID number, or ISIN, of the fund
- where and how the money is invested – which sectors, companies, geographical regions, shares/bonds etc
- how the fund is rated for risk
- the track record for performance
- whether it’s recommended
- how to pick the right version
As an example, lets take the first ‘impact’ fund identified by ThePath on their home page – Liontrust Sustainable Future Corporate Bond. To find out more, I searched the ii ACE 30 list to see if I could find it. There’s a fund listed there as Liontrust Sust Fut Corp Bd 2 Grs Inc – that must be a version of this fund.
To check if I can invest in it, I go into my SIPP trading account and search for ‘Liontrust Sustainable Future Corporate Bond’. Two funds are listed – ‘Class 2 Gross Income’ and ‘Class 6 Gross Accumulation’. The different classes sometimes reflect the charge terms, and the ‘Accumulation’ version is more convenient for a pension plan that is yet to mature – I discussed these things here.
I’m satisfied now that the fund listed within ii’s ACE 30 is the right fund in terms of investments, risks, etc. On the ACE 30 list, it is classed as ‘Considers’ rather than ‘Embraces’, which suggests its ethical credentials are middling. I click on ‘find out more’ under ‘Selection Rationale’, to see why ii speaks highly of the fund as an investment. I also find that it is described as ‘Sustainability Themed’, which chimes with the fact that ThePath have chosen it.
At the bottom of the page there is a link to ‘view factsheet’. The chart on the factsheet is worth a look. I click on the ‘1 year’ tab and see that the fund was a bit more volatile during the initial COVID bump in March/April 2020 than the comparator. However, the fund seems to now have regained the ground.
Within the factsheet is a link to the KIID – the Key Investor Information Document. This shows that the fund has been classed as risk 3 on a scale of 1 to 7. That’s usual for a generally stable fund which invests in fixed income bonds rather than equities. (This doesn’t mean the fund itself is fixed income.) This is a fund you might use to balance out the equity funds in your portfolio to lower risk, although that dip of over 10% was a bit of a concern.
I still don’t know where the money is actually invested. To find out more, I go to trustnet.com and type ‘liontrust sustainable bond’ in the search box. Again I can only see the ‘2 Inc’ version, not the ‘6 Acc’ version, but I’m working on the assumption that the holdings are the same. Indeed, the ‘All Units’ tab lists fees, ISIN (ID no.) etc for both versions.
At the top of the page, I can see that the fund has been given a ‘Crown Rating’ of 2 out of 5. Hmm. And back in the overview tab, I can see that risk has been rated as 39 on the FE Fundinfo risk scale (where 100 is the FTSE 100) – so now we have two alternative risk assessments.
And now for the big reveal – the ‘Breakdown’ tab lists the top 10 holdings. It’s worth noting that this uncovers only a fraction of where the money is. I’ve looked on the Liontrust website for the rest of the detail, but can’t immediately see it.
The 10 top holdings at time of writing according to Trustnet are below. I am guessing ‘BDS’ means ‘bonds’, i.e. loan, with the percentage being the interest rate on the loan and the date being the date the loan is due to be paid off.
|AT&T INC 7% BDS 30/04/40 GBP(VAR)||Telecomms||2.87%|
|STANDARD CHARTERED 5.125% DTD SUBORD NTS 06/06/34 GBP100000||Banking/finance||2.77%|
|NATWEST GROUP PLC FXD TO FXD RT RST NTS 14/08/30 GBP T2||Bank||2.64%|
|ORANGE SA 8.125% BDS 20/11/28 GBP1000||Telecomms||2.55%|
|VODAFONE GROUP 5.90% EUR MED TRM NTS 26/11/32 GBP(VAR)||Telecomms||2.48%|
|VERIZON COMMUNICATIONS INC||Telecomms||2.42%|
|AXA 5.453% UNDATED BDS GBP100000||Insurance||2.40%|
|M&G PLC 5.625% RESETBL DTD NTS 20/10/51 GBP T2||Investment/finance||2.24%|
|AVIVA DATED 5.125% FLTG 04/06/50 GBP100000||Insurance/finance||1.88%|
|COOPERATIEVE CENT RFFISEN BA/NL 4.625% BDS 23/05/29 GBP100000||Bank?||1.78%|
Looking at this, and knowing I have some skin in this particular game, I suddenly don’t feel like much of an eco-warrior. The Path talk about investing in renewable energy, healthcare, housing, recycling, education etc, so it’s a bit of a jolt to see so many banks in the first fund they list. This isn’t a criticism of The Path, and honestly, having done this exercise for a lot of funds, it’s not a surprise.
By their nature, funds invest in big corporates. That is the game we are playing here. But it is not the only game. Rupert Read suggests keeping your money under the mattress, and Mark Boyle went moneyless for two years. Rob Greenfield chose to defund injustice by divesting his money from his pensions and investments – he has written about his concerns about banks, and keeps his money in a credit union. And as I mentioned earlier, you can invest your pension directly in green projects or your chosen corporate property.