Sustainable Times – Premier Miton Diversified Sustainable Growth Fund

Neil Birrell

Premier Miton’s Chief Investment Officer

In this edition of Sustainable Times, Neil Birrell, Chief Investment Officer and manager of the Diversified fund range, looks at the bond portfolio within the Premier Miton Diversified Sustainable Growth Fund and how green bonds play a key role.

Bonds are now a key element of any multi asset fund that seeks growth in our view

Since March 2022 we have been increasing the weighting to bonds across the range of Diversified funds. Looking back, that was a little early, but we were coming from a position of having little exposure to bonds and have been building the weighting incrementally.

Getting the timing exactly right when making asset allocation changes can be down to luck as much as skill and experience, so doing so over time, as opportunities present themselves is a pragmatic approach, in our view.

In essence, as bond yields have risen (and prices have fallen) through the year, the relative attractiveness of bonds has improved. It is possible to obtain better returns for less risk and the power of compound returns from bonds is becoming evident again. However, the bond market is enormous and far from homogeneous, meaning it is important to be selective. We have focussed on good quality, short dated corporate bonds and some government bond exposure.

We have written about this at length through the year, so that’s enough of that here.

Bonds in a fund focused on sustainability

The Premier Miton Diversified Sustainable Growth Fund invests in bonds, equities, property company shares and other asset classes including alternative investments. These are assessed against relevant Environmental, Social and Governance (ESG) criteria and are aligned with sustainable growth themes.

Bonds issued by utility, infrastructure and financial companies, amongst many others, can be associated with these themes. Government bond investments reflect the countries that issue them, with some demonstrating a progressive approach to factors such as democracy, civil liberties, and the environment. Green bonds are an example of this.

Green bonds are becoming more and more popular with companies issuing them and with investors too. Unlike many “green” assets, green bonds are a well-defined product under the Green Bond Principles and are a global, growing market which has been around since 2006.

While a green bond’s credit risk does not differ from a non-green bond issued by the same entity, the way the proceeds from a bond issuance are used is different. The Green Bond Principles state that the proceeds from a green bond should be used on green projects with categories such as renewable energy and energy efficiency. The selected category is specified at the time that the bond is issued.

We are finding numerous interesting opportunities to invest in such bonds and they come with the benefit that the proceeds raised by the issuer are providing positive impacts for the environment and society. Let’s look at a couple of examples.

Examples of green bonds held in the fund

Orsted 5.125% 13/09/2034

Orsted is a Danish energy company involved in renewable energy generation and distribution.

The company has transformed from being one of Europe’s most carbon and coal intensive energy users to becoming a green energy leader. In 2019, it met its target to transform its energy production being 85% from fossil fuels to 85% from renewables by 2040, a full 21 years early.

Orsted is now committed to generating 99% of its energy from renewable sources by 2023. In 2021, around 90% of its energy was generated from ‘green’ sources, with the company focusing on developing wind power infrastructure and transitioning thermal plants away from fossil fuels.

Additionally, in 2021, the company expressed a desire to have a net positive impact on biodiversity across all new power plants commissioned by 2030. Orsted is at the leading edge of renewable power generation and has ambitious plans.


NatWest 2.057% 09/11/2028 & NatWest 2.359% 22/05/2024

NatWest issues green bonds whose proceeds are used to provide green building loans under the green project category of “energy efficiency.” NatWest reported that, at the end of 2021, their green bonds to date had provided over 2,000 UK green mortgages avoiding 6,400 metric tons of CO2 a year.

Good buy Mr. Green Bond?

Bonds are a key asset class for a multi asset fund, yields have risen to levels that provide interesting opportunities and green bonds are well suited for a fund investing in sustainable growth themes: this is a good combination for the Premier Miton Diversified Sustainable Growth fund.

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Risks

The value of stock market investments will fluctuate, which will cause fund prices to fall as well as rise and investors may not get back the original amount invested.

This fund may experience high volatility due to the composition of the portfolio or the portfolio management techniques used.

Government and corporate bonds generally offer a fixed level of interest to investors, so their value can be affected by changes in interest rates. When central bank interest rates fall, investors may be prepared to pay more for bonds and bond prices tend to rise. If interest rates rise, bonds may be less valuable to investors and their prices can fall.

Reference to any particular stock/investment does not constitute a recommendation to buy or sell the stock/investment.

Funds that follow a sustainable investment approach exclude companies which do not meet their sustainability criteria from the investment universe and therefore can carry a higher risk than funds with a more diversified portfolio

Forecasts are not reliable indicators of future returns.

IMPORTANT INFORMATION:

For Investment Professionals only. Not for onward distribution. No other persons should rely on the information provided.

Whilst every effort has been made to ensure the accuracy of the information contained within this document, we regret that we cannot accept responsibility for any omissions or errors. The information given and opinions expressed are subject to change and should not be interpreted as investment advice.

Persons who do not have professional experience in matters relating to investments should not rely on the content of this document.

A free, English language copy of the fund’s full prospectus, the Key Investor Information Document and Supplementary Information Document are available on the Premier Miton website from launch, or you can request copies by calling us on 01483 306090.

For your protection, calls may be monitored and recorded for training and quality assurance purposes.

Financial promotion issued by Premier Portfolio Managers Limited (registered in England no. 01235867), authorised and regulated by the Financial Conduct Authority, a member of the Premier Miton Investors marketing group and a subsidiary of Premier Miton Group plc (registered in England no. 06306664). Registered office: Eastgate Court, High Street, Guildford, Surrey GU1 3DE.

008429/151222

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This section of the website and the content it contains is for retail clients only and by persons who are resident in the United Kingdom [who are not US persons]. Professional advisers should refer to the Professional Advisers site.

The content of the pages of this website is for your general information only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

You acknowledge that such information may contain inaccuracies or errors and we expressly exclude liability for any such inaccuracies or errors to the fullest extent permitted by law. Your use of any information or materials is entirely at your own risk, for which we shall not be liable.

The information contained on this website does not constitute an offer or solicitation to sell or purchase shares in the funds or portfolios or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

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The content of the pages of this website is for your general information and use only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

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The information contained on this website does not constitute an offer or solicitation to sell shares in the funds or portfolio or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products, represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

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