Parmenion ESG Growth Solutions – a fund Due Diligence update on ESG funds
Our specialist team of ESG investment managers continually research the ESG fund universe with the support of our independent Ethical Oversight Committee (EOC). Recently we’ve been researching a new ESG alternatives fund: Trium ESG Emissions Improvers.
What are ESG alternatives funds?
ESG alternatives funds form part of Diversified Alternatives - our asset class designed to deliver low correlation to equities and bonds. In other words, these are funds that have the potential deliver a positive return during equity and bond market sell-offs.
While we don’t hold Diversified Alternatives in our strictest Screened Growth solution, we include alternatives funds where we see strong ESG integration, despite not fully meeting our ESG mandates. They can currently be found within our Parmenion Responsible, Sustainable and Ethical Growth solutions.
How does the Trium ESG Emissions Improvers fund demonstrate strong ESG integration?
Trium is a long-short equity fund that seeks to achieve positive returns over the medium term (three years), independent of market conditions.
The long equity positions are in companies which Trium view as able to profitably decarbonise their business and which are receptive to working with Trium to achieve this. Voting and engagement with investee companies is a key part of Trium’s strategy.
The fund tends to have a bias to smaller and mid-sized companies, which Trium believe to be typically more nimble than larger companies and better able to pivot their businesses to become less carbon intensive.
It has a bias to European companies, given the climate-friendly regulatory backdrop. It focuses on high-emitting companies to have most potential benefit if they decarbonise successfully.
Trium holds long positions in around 30 companies, and the portfolio manager builds in-depth knowledge of each company’s business model and their competitive position. They calculate the estimated decarbonisation costs for each company, to assess which companies can most profitably reduce their emissions.
The portfolio manager leads incredibly detailed engagements with each company, acting like a decarbonisation consultant, and there is very comprehensive reporting on this. Key sectors include machinery, chemicals, construction and utilities. The fund’s top holdings currently include Weir group (engineering); National Grid, RWE and Enel (utilities); Saint Gobain (construction); Heidelberg Materials (materials); and SSAB (steel). The short equity positions tend to be hedges, to ensure the overall exposure to the equity market remains close to zero.
Why does it not fit our strictest ESG criteria?
While the Trium fund has some exclusions in place, there is no broad avoidance of environmental damage, and the fund deliberately focuses on companies in “dirtier” sectors which it believes can lead the green transition.
For example, the fund can invest in companies with exposure to fossil fuels if they believe there’s strong potential to reduce its emissions.
Historically, the fund has also owned small oil companies with oil & gas pipelines used in carbon capture and storage.
On balance, what’s our view of Trium?
We believe the Trium fund has strong ESG credentials. It’s unique, with an authentic and genuine ESG objective to invest in companies leading in decarbonisation and engage to encourage their progress.
The fund has a strong track record in delivering positive returns during negative months for equity and bond markets, bringing strong diversification benefits to our portfolios. While fees are relatively high for the fund it is in keeping with other type of long/short equity funds.
Investors who want to maintain the strictest exclusions against fossil fuels and environmental damage may prefer to avoid this fund, which takes a more positive approach. Our Screened Growth solution doesn’t include Diversified Alternatives, nor does our Passive ESG Growth solution.
What’s the outcome of our Trium due diligence?
Following rigorous investment due diligence and consultation with our EOC, we have added the Trium ESG Emissions Improvers Fund into the Diversified Alternatives asset class, held within our Responsible, Sustainable and Ethical Growth solutions. This replaces the Newton Responsible Real Return fund (which was sold in June, following various organisation and investment team changes, and the proceeds held in a cash fund temporarily).
If you’d like to know more about ESG funds, or explore our ESG Growth range and how these funds can support your clients’ investment goals, please get in touch ➜
Trium takes a genuinely different approach – investing in companies with the greatest potential to decarbonise and engaging to help them get there.
FAQs
What are ESG funds?
ESG funds are investment funds that consider Environmental, Social and Governance factors alongside financial returns into their decision-making. They aim to deliver long-term returns while considering sustainability and ethical practices.
What is an ESG alternatives fund?
An ESG alternatives fund aims to deliver diversification benefits while still integrating ESG principles.
How do ESG funds differ from traditional funds?
Unlike traditional funds, ESG funds actively screen companies for sustainability, governance, and ethical practices.
What is a long-short equity fund?
A long/short equity fund buys shares in companies it believes are good investments or undervalued (Long Positions) while also selling borrowed stock with the intention of buying them back at a later date at a reduced market price (Short Position).
The aim of long-short is to maintain a market-neutral position to reduce volatility and potentially generate returns regardless of the market conditions. For example, if 20% of the fund is in construction firms seen as ESG leaders, it might short other construction companies by around the same amount in order to maintain a market-neutral position and reduce volatility.
We see Trium as a unique ESG fund – combining authentic engagement on decarbonisation with a proven track record of diversification.
Want to hear more?
Sign up to our fortnightly 'Adviser Insight' newsletter for expert insights - scroll down and use the 'Sign up' button below to receive our updates.
This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.
