Looking for fund investment ideas that don’t compromise your moral scruples? The Morningstar Sustainability Rating is calculated using a Portfolio Sustainability Score, which is based on a portfolio’s environmental, social and governance (ESG) score and a deduction for current ESG-related controversies.
ESG and corporate governance ratings and research provider Sustainalytics classifies controversial events involving companies by severity across five categories, with category 5 being the most severe. To arrive at the rating, we then sort funds into five normally distributed groups by comparing a fund’s Portfolio Sustainability Score with that of its Morningstar category peers.
These three funds score the top Morningstar performance rating of 5 stars – meaning they have outperformed their peers over the long term, and the top ESG rating of 5 globes, proving investors do not have to choose between ethical investment and returns.
JOHCM UK Opportunities
This Silver Rated fund is a good choice for investors who can afford to be patient, says Morningstar fund analyst Samuel Meakin. The fund’s appeal hinges heavily on the experience of its lead manager and the team’s consistent application of his investment process.
Fund manager John Wood has a long-term strategy that combines a top-down macro overlay and bottom-up stock selection, with the latter focused on identifying quality stocks trading at reasonable absolute valuations.
The strategy has been well executed. A high-conviction stock portfolio, the use of cash, and a strict sell discipline set Wood apart. The willingness to sell aggressively and the bias to quality stocks have helped the fund over the long term, particularly in down markets such as 2008 and 2011.
Fidelity Global Dividend
This fund’s investment objective is to achieve income and long-term capital growth from a portfolio consisting primarily of the shares of companies from around the world. It has an impressive track record, up 18% year to date, and four years of outperformance against the category average and the benchmark. The largest geographical weighting is in the United States at 37%, followed by the Eurozone at 24%. The fund manager Daniel Roberts favours defensive sectors such as healthcare and consumer stocks, with very little exposure to more volatile sectors such as real estate and energy companies.
Kames Ethical Cautious Managed
It is perhaps not surprising that this Bronze Rated fund scores highly on the ESG rating, as its name suggests, Kames Ethical Cautious Managed is a strong choice for ethically conscious investors, says Morningstar fund analyst Randal Goldsmith. But the fund also delivers on performance too. It applies relatively high standards of ethical screening, yet performance has been strong and consistent relative to peers in the IA Mixed Investment 20-60% Shares group and the GBP moderate-allocation Morningstar Category. The fund's charges are also competitive, adding to the attractions of this proposition.
The process is a combination of top-down and bottom-up research. The top-down element is driven by the house view, which is determined by the strategy policy group following monthly discussions with the main investment teams within Kames.
The fund's rolling three-year returns have been consistently above that of the IA peer group and mostly in the top quartile, in line with the managers' objective. The fund has also outperformed its category in six of the seven full calendar years since launch, and showed an annualised average outperformance of more than 230 basis points through September 2015.
