With roughly €4bn under management in Ireland, the Green Effects Fund invests in companies demonstrating a commitment to either supporting the environment or a strong corporate social responsibility (CSR) ethos. Sectors such as wind energy, recycling and waste management, forestry and water-related businesses all feature prominently within the fund.
Over the years, we have seen an increased focus from our investors on sustainability and ethical investing. We now have clients ranging from retail investors to religious orders, charities and hospital foundations. The fund appeals to those who have a socially responsible focus, those with a particular interest in alternative energy, and those looking to invest longer term but without necessarily getting involved in banking or oil.
The fund has had five-year annualised returns of 11.5% and three-year annualised returns of 4.6%. This compares favourably against the Euro Stoxx 50 (a benchmark representation for the leading 50 stocks in Europe), which returned 9% and 2% respectively in the same periods. While the fund’s performance over the past five to ten years has been strong, the fact that it avoids certain sectors will have an impact on performance. The fund won’t exactly match what global equities are doing, and year to date the fund has outperformed given that it does not have exposure to banking or large technology stocks (FANGs).
Buying and selling
The fund is invested in several Japanese stocks due to their good name when it comes to CSR. Examples include cycle gears manufacturer and distributor Shimano, and water and infrastructure firm Kurita Water Industries. On a sectoral basis, the fund has a reasonable exposure to wind energy. One example of this is Vestas Wind Systems, one of the world’s largest wind turbine makers. Lesser-known companies include Swedish firm Svenska Cellulosa, one of the largest owners of forestry in Europe which is focused on a sustainable business model where “value creation for people and nature is a prerequisite for growth and profitability”. Innovative medical devices firm Smith & Nephew, which is included in the FTSE 100, delivers products with a reduced footprint. For Smith & Nephew “sustainability is better business”.
So what is the outlook for the fund this year?
We will be looking to reduce the fund’s exposure to the US market where currently about 25% of the fund is invested. We anticipate that Asia and Europe should outperform over the next 12 to 18 months compared to the US. Recent weeks have been volatile, but as the fund does not hold any bank stocks, we expect it to outperform. It holds a reasonable amount of defensive companies such as water and recycling for example, which are quasi-utilities and therefore more defensive in nature. On a general note, we are also anticipating three interest rate hikes in the US this year, although we don’t expect the first similar move in Europe until the second quarter of 2019.
To speak with a Portfolio Manager or Account Executive today, please phone the Cantor Fitzgerald dealing desk on 01 633 3633.
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