ii ACE 40 investments:
Liontrust Sustainable Future Corporate Bond Fund

Why we recommend it

Since 2013 the fund had been led by Stuart Steven at Alliance Trust Investments before he and the sustainable investment team were acquired by Liontrust in 2017. Steven retired as of September 2023, and going forward, rather than a single head, senior trio Kenny Watson, Aitken Ross, and Jack Willis jointly report to head of sustainable investments, Peter Michaelis and absorb Steven’s former duties.

The fund invests a minimum of 80% in investment grade corporate bonds that are sterling denominated or hedged back to sterling and aims to outperform the iBoxx GBP Corporate All Maturities Index. The team focus their efforts on finding high quality bond issuers by combining credit analysis with in-depth analysis of issuer specific factors, including environmental, social and governance (ESG) and macroeconomic analysis. Where relevant, the team also aim to identify companies whose core products or services are making a positive contribution to society or the environment. 

The fund has typically held around 20% in European issuers and 5% in U.S issuers and has included selected opportunities in high yield names. Government bonds are used to implement the fund’s overall duration positioning (sensitivity to changes in interest rates). The fund is concentrated versus peers with approximately 80 bonds but sector exposure is well diversified and typically within 5% of the index. At just under half of the portfolio currently, financials have historically been the largest sector exposure.

 Opinion

While Steven’s departure is a loss for the sustainable team given his experience and tenure, he worked closely with his co-managers in credit and rates strategy and decision-making. The three have close to a decade of average tenure on a team that has shown good stability, leaving them well placed to provide succession.

The fund’s shorter-term returns are not compelling relative to the index or peers. However, it has been able to keep pace over a long period. For investors seeking a specific ESG mandate, this fund is good option due to a disciplined and integrated approach to sustainable investing, which uses a well-structured process crafted by a long-standing team.

Sustainability Criteria

Morningstar Sustainable Attribute: This fund is considered a sustainable investment product based on its prospectus or other regulatory filings. As a General ESG Investment, the fund uses ESG criteria as a central part of the security-selection and portfolio-construction process. These strategies endeavour to promote sustainability and minimize negative impact, without focusing on a specific theme or area of action.