Sustainable Times – Premier Miton Diversified Sustainable Growth Fund

We have been writing a monthly investment note on the Premier Miton Diversified fund range for some time now. It is titled In Favour / Out of Favour and covers the investment team’s current views on markets, and how those views are being implemented in the funds’ portfolios across the different asset classes globally. As our Diversified funds have a particularly large investment universe, we believe our monthly investment notes are a very useful way for us to communicate with investors, both existing and potential.

We are pleased to be starting a new monthly investment note entitled Sustainable Times, focused purely on the Premier Miton Diversified Sustainable Growth Fund. We are particularly keen to provide a separate insight for this fund as investments are assessed against relevant environmental, social and governance criteria and are aligned with sustainable growth themes.

Please note, the investment team took over the management of the fund on 1 March 2021 and the name was changed to the Premier Miton Diversified Sustainable Growth Fund on 1 March 2022.

Welcome to the first Sustainable Times.

The US dollar has been the go-to currency; has it gone too far?

We have considerable non-sterling exposure in the fund, with the biggest being the US dollar. We search for sustainable investment opportunities globally across all asset classes. In particular, we often find a large number of companies in the US that have strong ESG credentials and fit within our sustainable growth themes. Therefore, the exposure to the US dollar has been relatively high.

The US dollar has been strong; it has had the tail winds of the Federal Reserve putting up interest rates faster than other countries, coupled with a strong domestic economy – both are positive factors for the US dollar that sterling has not benefited from. Indeed, these factors have been headwinds for the UK’s currency. As a result, the dollar has risen against sterling to levels not seen since the mid 1980’s. As a sterling-based fund, this has been profitable.

Given the scale of the move, we have started hedging the US dollar exposure; in essence that means we have locked in some profit. With the portion we have hedged, we will not profit further if the dollar rises further against sterling, but we will not lose if sterling rises. For now, we have hedged 50% of the exposure and will increase that into further sterling weakness.

Sustainable property companies have fallen out of favour in the short term

I hope you will forgive me for plagiarising my own work and using some of what I wrote for the In Favour / Out of Favour note this month. But the weighting in property companies plays an important part in the fund including investment returns, diversification and sustainability.

Firstly, the sustainability. We take a qualitative approach to sustainability in this asset class, supporting management teams who are “turning brown buildings green” and looking at sustainability criteria by sub-sector. The aim is for each company to be aligned with our “sustainable cities and communities” theme. We believe this is closely aligned to good financial returns and also provides access, in a liquid manner, to real estate, thus diversifying the fund.

Over the long term, the share prices of property companies and their valuations reflect the underlying asset class: physical property. We don’t take a blanket approach; there are specific areas that look more attractive which include: energy efficient offices, industrial property such as logistics, German and Nordic residential, UK convenience and European prime retail, as well as some specialist companies.

These sectors and the companies within them have good long-term prospects in our view. However, the dominant factor recently has been the likelihood of recession in the UK and Europe. The good long-term prospects have been put to one side and short-term risks have dominated.

There is little chance that real estate can avoid the impact of a recession, but remember, it is no different to any other asset class; prices discount future expectations, whether they are right or wrong. For the Premier Miton Diversified Sustainable Growth Fund, our universe is REITs and listed sustainable property companies in the UK and Europe, whose businesses are developing, converting, or managing real estate of all types. Physical property is illiquid, while listed companies are traded daily on stock markets, making them relatively very liquid. This means that whilst their share prices reflect the physical property market over the long term, they can, and do, behave like equities in the short term and investors take advantage of their liquidity.

This has meant that, in aggregate, on some estimates, share prices have moved out to a discount to Net Asset Value (NAV) that has only been seen twice before: during the deep recessions of the early 1990’s and the global financial crisis. That would suggest a lot is in the price.

But, what will cause the discount to narrow? Firstly, if NAVs hold up better than expected, share prices will improve. Any evidence that inflation is slowing, or when interest rates may peak, will be a plus point. There will be property transactions taking place, as there is significant demand in many sectors; if these transactions take place at good prices, shares will react.

To conclude, the short-term outlook is grim, as property company share prices have fallen a long way and are trading near historic lows versus NAV, so, arguably discounting that. The economic situation will improve at some point and there are potential catalysts for share price recovery. We like the asset class and are focused on more attractive sub-sectors and high-quality companies with strong sustainability characteristics. We are willing to take short-term pain to stay in the game for the potential long-term gain – in part thanks to the inherent diversification of multi-asset investing.

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Risks

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

Property values can rise and fall sharply depending on the strength of a country’s economy.

A hedge is designed to offset the risk of another investment falling in price. It can also act as a limit on potential gains if the investment that has been hedged increases in value.

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

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

Future forecasts are not reliable indictors of future returns.

IMPORTANT INFORMATION:

For Investment Professionals only. No other persons should rely on any information contained in this document.

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.

All data is sourced to Premier Miton unless otherwise stated. Persons who do not have professional experience in matters relating to investments should not rely on the content of this document.

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

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, or you can request copies by calling us on 01483 306090.

Financial Promotion is issued by Premier Miton Investors. Premier Portfolio Managers Limited is registered in England no. 01235867. Premier Fund Managers Limited is registered in England no. 02274227.  Both companies are authorised and regulated by the Financial Conduct Authority and are members of the ‘Premier Miton Investors’ marketing group and subsidiaries of Premier Miton Group plc (registered in England no. 06306664). Registered office: Eastgate Court, High Street, Guildford, Surrey GU1 3DE.

007704/061022

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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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This section of the website and the content it contains is for professional financial advisers only and should not be relied upon, or circulated to, retail clients. Retail clients should refer to the Private Investor's site.

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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