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Hold or Fold? CIS Sustainable Leaders Trust vs Jupiter Environmental Income

CIS Sustainable Leaders Trust

What Citywire says

CIS Sustainable Leaders Trust was launched in 1990 and is managed by Michael Fox. It aims to provide capital growth from a diverse portfolio of equities, mainly in the UK. Funds total £193 million.

What CIS says

‘The long-term performance of the fund is proof that socially responsible investment (SRI) funds can deliver consistent returns through different market cycles,’ says Fox. ‘The trust has outperformed the UK market by applying a focused, long-term investment approach to the three core areas of the environment, human welfare and sustainability.

‘A poor outlook for the UK and US won’t stop efforts to tackle environmental and human welfare issues. Companies operating in these areas will continue to grow even through a downturn.

‘The trust offers investors exposure to emerging markets through infrastructure development, especially water and electricity, due to the strong social benefits. We remain positive on emerging markets but are keeping an eye on inflation.

‘The trust is underweight in consumer-related stocks such as retailers. Instead we have been buying public transport companies as high petrol prices lead to increased passenger numbers.’

What the advisers say

Jon Cobb, director, Trinity Wealth Management

The primary intent of the fund is to see social/environmental change rather than getting the punter to part with his money. Fox is an experienced manager and CIS has an ethical value system that permeates through the company.

It has an interesting mixture of positive and negative screening, which satisfies the moralist as well as the environmentalist. However, I believe many ‘ethical’ investors are one or the other, and this fund may fail to satisfy either.

For example, there seems to be a lack of negative screening against gambling and pornography, which many consider moral issues. On the other hand, an investor who is passionate about the environment may have no problem investing in gaming stock.

The fund’s three-year record is good, ranking top quartile in its sector. A 5% initial charge remains criminal in my view but pretty much standard. If it ticks your SRI boxes, this is a hold.

John Ditchfield, director, Barchester Green Investment

Fox has been running the fund for CIS since late 2003 and is A-rated by Citywire. The fund applies strict negative screening criteria but CIS does not rate highly on active engagement with companies on environmental and/or ethical performance issues. This is in contrast to similar UK portfolios run by Henderson and F&C.

Despite CIS’s strong ethical track record, it lacks a distinctive proposition when it comes to environmental investing, especially when compared with Impax or Jupiter’s dark green Ecology fund.

Major holdings in Severn Trent, which has been in the news following serious criticism from Ofwat, and GlaxoSmithKline could be an issue for ethical investors.

The fund is positioned much more as a negatively screened fund that invests in companies with a better-than-average record on environmental and social issues. However, this part of the market is already crowded with options from Aegon Asset Management, F&C, Henderson and Standard Life. It is a fold.

Ross Brookes, investment manager, Origen

CIS analyses the social, ethical and environmental impact of investments across its fund range, not merely for the Sustainable Leaders trust. This approach is unique and has served investors well.

The lack of exposure to some of the strongly performing primary industry sectors, such as oil and gas and mining, has not had a negative impact on performance relative to the index. Performance has been excellent, beating the peer group median and the FTSE All-Share Index over three and five-years.

The fund uses positive screening, because it supports a company’s sector (such as clean energy), policies (such as fair trade) or products and services (such as social housing). It also uses negative screening of sectors (such as the arms trade), policies (such as sweat shop labour) or products and services (such as tobacco).

The CIS team has demonstrated an ability to beat the market despite the handicap of a restricted universe. It
is a hold.

 

Jupiter Environmental Income

What Citywire says

Jupiter Environmental Income Acc was launched in November 1999 and has assets of £50 million. It aims to provide income and long-term capital growth through investment primarily in UK equities. It focuses on investing in UK companies that are actively managing their environmental and social impact. It specifically avoids those associated with armaments, tobacco, nuclear power and animal testing for toiletries and cosmetics.

What Jupiter says

‘Green investing is not simply a question of avoiding environmentally bad companies,’ says the fund manager, Chris Watt. ‘Rather it is about seeking out growth companies operating in fast growing niches. We try to identify the companies whose new products, services and technologies are enabling the shift to a low carbon economy.

‘Our research effort focuses around six green investment themes, which represent some of the most pressing social concerns. This helps us to distil the best opportunities for our funds. We also invest in good governance companies that exhibit proactive environmental and social responsibility policies.

‘We remain cautiously positioned. We hold a sizeable cash balance, which we are selectively investing in companies that have been oversold on a longer term view.

‘The key drivers behind green investing remain robust and continue to grow. High energy prices are adding further impetus to the shift to a low carbon economy. So the long-term case for environmental investment remains strong.’

What the advisers say

Jon Cobb, director, Trinity Wealth Management

Jupiter is fully committed to SRI and on that basis I would look favourably on any Jupiter SRI offering.

I would have liked Watt to have greater experience before taking responsibility for this fund. I worry on a stock-specific basis, particularly as he would profess to be a value fund manager. However, I am happy with the thoroughness of Jupiter’s ethical screening processes.

Historic performance is meaningless because Watt only took the helm in January 2007 and since then has had a torrid time. Still, he can take some credit for the consistent performance of UK Alpha, of which he is deputy manager.

With only 61 holdings in the Environmental fund, there is the potential to generate alpha. There is also a reasonable dividend yield although this does not appear to be a priority.

If a 5% initial charge is steep, a 5.25% charge is unforgivable. Investors do not deserve to be charged at this level. Until performance warrants paying top dollar, this fund is a fold.

John Ditchfield, director, Barchester Green Investment

Jupiter’s notes on Watt’s background do not indicate any particular skills in environmental investing. The fund’s 16% allocation to financials and overall mid-cap bias will not have helped performance and explain its fourth quartile position over 12 months. The long-term performance looks better but, with an unproven manager, it is a stretch to base a decision on that.

The fund struggles to shine from a green and ethical perspective. In 2007 a report by environmental research group Trucost analysed the carbon footprint of companies held in 185 fund portfolios. Jupiter Environmental Income was 179th out of 185 funds surveyed.

It is at the lighter green end of the environmental and ethical continuum. It is an option for investors seeking a limited exposure to companies positioned to benefit from global warming and environmental degradation but unwilling to buy a dark green environmental fund such as Jupiter’s Ecology.

The fund is a unit trust with a 6.25% bid/offer spread. For me it is a fold.

Ross Brookes, investment manager, Origen

Longer term performance has been sound but relatively disappointing over the medium term when compared with other ethical mandates. The fund invests in companies that provide solutions to environmental and social problems. That focus has led to six themes: clean energy, waste management, water management, transport, sustainable living and beneficiaries of legislation.

The types of stock include companies developing products that: have an environmental or social benefit; demonstrate leading practice among their industry peers; have relatively low environmental impacts; and whose management is committed to improving performance and demonstrating social and environmental risks are managed well.

The fund has a heavier focus on large cap companies than many of its competitors. Hence it will perform in a different manner from the small and mid cap focused funds in this space. Sound performance over the longer term makes this a hold.

Citywire verdict

CIS Sustainable Leaders Trust: The manager gets a green light for his great performance record. Hold.

Jupiter Environmental Income: An inexperienced manager and high charges weigh against this offering. Fold.

Twist: Norwich Union Sustainable Futures European has a strong performance track record and good diversification across Europe.

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