We’re firm believers in the benefits of active management. Across our portfolios that translates to active asset allocation from both a strategic and tactical perspective, and it doesn’t stop there.
The ‘active’ approach extends to the underlying assets managed by our specialist teams and the mindset of the businesses we engage with as investors. The management teams of the companies in which we invest need to share, or at least be open to, driving positive change across a host of environmental, social and governance related matters.
Evolving our approach
Such openness to change is mirrored in our own approach. We believe it is important to refine and evolve our investment management style to keep pace with market developments and our clients’ shifting priorities. Our equity allocation is one such area where we’ve recently sought enhancements, diversifying our style exposure to tap into a broader range of potential portfolio opportunities.
By virtue of both exclusion criteria and a targeted opportunity set, many sustainability-focused equity strategies have an inherent bias towards more Growth and Quality factors. In the years immediately prior to 2021, this emphasis provided a positive tailwind. However, that reversed in 2022 when higher inflation and rising interest saw markets rotate. Growth was soon out of favour and Value saw a return to the fore.
I don’t think that we’re going to have a deep or long-lasting recession – the financial problems that normally cause a severe or protracted recession are just not there. That means that we will also see economies and markets recover in 2023.
Broader equity style dynamic
In June 2022 we added a new sustainable income equity strategy to the sustainable universal portfolios. It provides an income stream from dividends, which over the long term can be a useful component of total return. Importantly, it also serves to provide a broader style dynamic to the equity mix, which thereby reduces our reliance on Quality and Growth factors.
CT Sustainable Universal Map Balanced Fund
Equity allocation – changes since February 2020
Source: Columbia Threadneedle Investments
Companies with long-term tailwinds
Within this global equity income strategy our specialists focus on research within several defined sustainability themes – structural trends providing long-term tailwinds to well-placed companies. Taking our ‘resource efficiency’ theme as an example, one company we particularly like is Smurfit Kappa Group, an innovative provider of credible alternatives to single-use plastic packaging, including recyclable and recycled cardboard packaging. 40% of produced plastic is used in single-use packaging and solutions from companies like Smurfit Kappa can help the world transition towards a more sustainable approach.
At launch in 2019, our CT Sustainable Universal MAP range brought something new to the marketplace – low-cost multi-asset solutions with a sustainable remit. As the investment backdrop continues to shift, we’re committed to evolving and improving how the portfolios are managed to ensure they remain a relevant and attractive investment option for advisers to share with their clients.
