George Latham (Managing Partner of WHEB Asset Management) and Tim Dieppe (Fund Manager of WHEB Sustainability fund) recently made the move from Henderson and specifically the top performing Industries of the Future fund to WHEB. George said, "the core problem with Investment Houses involved in sustainability is that it is always a fringe activity" and thus comes well down the list of the sales and marketing teams list of things to do. "The difference," George went onto say, "at WHEB is that the whole of WHEB is structured around sustainable investing." Unlike many other investment funds WHEB now have 5 investment professionals working on one fund, which George pointed out must be just about the best resourced fund in the market.
A challenge to Investors and IFAs
This focus should be key for investors and advisers alike in deciding to select the IM WHEB Sustainability fund and Clare Brook went on to challenge EIA members by saying, that "if you leave your money at Investment Houses who have cut, or drastically changed their approach to see what will happen, we might as well all go home and give up." The point amounted to a plea to investors and advisors alike to be aware of what is going on in the investment world and to make positive choices. WHEB have in Tim Dieppe a proven fund manager, and have made a serious investment in people to deliver a well resourced and thought through investment product. We must hope that the Investment Community will reward such investment in quality, to ensure that this level of investment continues into the future.
The question was asked - What is the impact for a client of following the WHEB team from Henderson and removing all of the ethical screens?
George Latham explained that when they were at Henderson there was a 10% difference in stock selection between the Henderson Industries of the Future fund with its lighter ethical screens and the Global Care Growth fund, with what are some of the most stringent ethical screens in the market. The difference in stock selection was almost entirely down to animal testing connected with health stocks. No testing is allowed in the Global Care Growth fund, while the Industries of the Future fund could invest in companies which undertook animal testing where they are legally required to do so for medical reasons.
The difference between the Industries of the Future fund (which is set to be merged into the Global Care Growth fund by Henderson in July) and the WHEB Sustainability fund by removing the ethical screens is about 'three stocks' Clare Brook explained, all relating to the armaments screen. The WHEB fund can invest in companies like Siemens which, because of the Military of Defence type contracts, would be excluded from the Henderson funds. At the same time Clare explained the team at WHEB have come from an ethically screened background and their values have not changed. Ethical investors need not worry because manufacturing arms runs counter to the sustanability philosophy and themes being run by WHEB even if there is not an overt screen.
While IFAs would need to be aware of the animal testing issue with clients, the explanation by the WHEB team was warmly received by the EIA members, who felt that the stock changes as a result of the armaments screen would be acceptable to clients in general.
UNPRI and Transparency
George Latham also told the audience that WHEB Group had recently become a signed up signatory to the UNPRI (United Nations Principles for Responsible Investment). One of the key principles is to be transparent about what you do. The spirit of these principles are not always followed up at fund level by Investment Houses who are signatories (F&C’s recent changes to the ethical screens in the Stewardship range is one example of this), but WHEB’s declaration that they will:
- publish summarised minutes of their Advisory Committee meetings;and
- a full list of the stocks they hold with how they fit into the themes 6 months in arrears
is evidence that they mean to live up to the spirit of the UNPRI.
George pointed out that the fund is about “investing in sustainability solutions” and pointed to some interesting facts providing indications of future growth drivers. Did you know that:
- The number of people aged over 85 in Europe is set to treble between 2005 and 2050 and that health care services for this group of people is set to increase at 9 times the rate of the market.
- In India more people have a mobile phone than have a tap; or that
- The digital universe is set to grow 44 times by 2020.
The fund is predominantly a mid cap fund, but that this did not mean that investors were taking above market risk. He pointed out that the fund was benchmarked against the MSCI world index and that the fund’s Beta (a measure of volatility relative to the market index) was currently at 0.89%. This means that in theory if the market was to rise 1 point, the fund would rise 0.89. While equally if it was to fall 1 point, the Wheb fund would likely fall 0.89. Of course you need to be careful when using this kind of measure because it is only indicative of the risk in a fund, but suggests ‘sustainable’ solutions as currently managed by WHEB carry slightly less risk than the general market.
The fund is investing in growth stocks on a thematic basis and thus has very little yield (dividend income). George was able to point to an average Price to Earnings (‘PE’) ratio of the fund currently of 13x earnings, compared to the MSCI World index of 10.9x. In layman terms this means that the market is prepared to pay 13 times for £1 earned by one of the companies in WHEB’s funds compared to 10.9 times for £1 earned frrom companies in the MSCI World index. However there is good reason for this because average earnings growth in one of the WHEB investments is currently 15% compared to the MSCI World Index company earnings growth of 11%.
George also pointed out that WHEB keep their geographic allocations in line with the MSCI World Index and thus performance will be directly as a result of their stock selection and not as a result of any macro-economic decisions.
Tim Dieppe, the fund manager, is a long term investor and expects to have an average holding period for his stocks of three years, which is quite different to the average holding period of stocks on the London and New York stock exchange of 8 months (down from 8 years, 20 years ago).
A compelling Case
Taken together the information WHEB provided to the EIA has positive overtones for investing in sustainable solutions and also presents a compelling case for the investment community to get behind the WHEB Sustainability fund.