Rathbones' Jones expands ESG reach for Ethical Bond fund

The manager, who is assisted on the fund by Noelle Cazalis, said he would only be investing in dollar- and euro-denominated assets as they are "easy" to hedge and would not "be going outside of there".

"We are looking for dollar- and euro-denominated assets that we will hedge back to sterling, so we are not going to be taking currency risk," he explained.

"What we are trying to do is evolve the process we have put into finding very strong assets in the UK to add a bit more of a global tilt to some of the assets we are looking at."

He has also been building up cash reserves in the fund to put to work during a market sell-off, with 5% now allocated to cash, which Jones admitted was "high for a fund like ours".

"We think spreads at the beginning of this year became a little tight. As a result, we have been allowing cash to build up a little bit," he added. 

"We receive positive net inflows into the fund on a regular basis. So rather than investing that money, we have been putting it to work in defensive covered names and leaving it in cash."

The manager said the market sell-off triggered by the coronavirus outbreak had created an opportunity.

"We need to understand what the likely impact on growth is of the coronavirus, and we think it could be fairly negative. There could be some reactions from central banks to support economies," he added. 

"So we are still on the sidelines at present but we are looking for this kind of opportunity to put some cash back to work."

Jones observed that "ethical and sustainable investing has come on in leaps and bounds" since the fund launched nearly 18 years ago.

"We have added predatory lending to one of our negative screens. On the positive side, we have added assets like social and charity bonds, and green bonds, which obviously did not exist when we first launched the fund," he added.

In December 2019, the European Parliament and Council reached agreement on an EU-wide classification system for sustainable investments.

Jones said the EU taxonomy is "something that we have to be conscious of as investors" and "whether that means we tweak the fund or not, or whether we keep the existing framework is something that we need to have a strategic look at".

The Rathbone Ethical Bond fund has consistently outperformed the IA Sterling Corporate Bond sector, delivering a 19.8% return for investors over three years to 27 February, compared to the sector average return of 13.9%, according to FE fundinfo.

 

This article was first published by Investment Week

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