Fundsmith launches ESG fund

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Fundsmith launches ESG fund

London-based asset manager Fundsmith has unveiled the Fundsmith Sustainsable Equity fund, targeting institutional investors, on 1 November.

The fund will exclude the following sectors from its investment policy: aerospace and defence; brewers, distillers and vintners; casinos and gaming; gas and electric utilities; metals and mining; oil, gas and consumable fuels; pornography, tobacco.

Fundsmith’s Ucits-complliant ESG strategy will invest in global equities and will not apply short-trading strategies. Neither will the fund invest in derivatives nor make currency bets.

Some 20 to 30 stocks will be held in the portfolio.

Criteria for eligible stocks include :

• high quality businesses that can sustain a high return on operating capital employed;
• businesses whose advantages are difficult to replicate;
• businesses which do not require significant leverage to generate returns;
• businesses with a high degree of certainty of growth from reinvestment of their cash flows at high rates of return;
• businesses that are resilient to change, particularly technological innovation;
• businesses whose valuation is considered by the fund to be attractive.

Sustainability screenings will take account of not only the companies’ handling of environmental, social and governance policies and practices but also their policies and practices on research and development, new product innovation, dividend policy and the adequacy of capital investment.

For the last three years, Fundsmith has been running a sustainable equity segregated mandate for Comic Relief the portfolio of which will form the basis for the Fundsmith Equity Sustainable fund.

The manager said that the portfolio has compounded in value by 23.9% p.a. over that period.

Fundsmith’s founder, chief executive and chief investment officer Terry Smith and other members of the Fundsmith team will invest over £10m into the new fund.

Smith commented: “We have long felt that many investors who apply the commonly used factors to identify sustainable investments do so at the expense of the long term economic sustainability of a business.

“By marrying important sector exclusions with the proven sustainable investment process of Fundsmith we have shown that we can deliver superior investment performance. I believe Fundsmith Sustainable Equity fund will provide a product that institutional investors both need and want.”

Fundsmith, established in 2010, is a signatory of the United Nations principles for responsible investment (PRI).