Wealth & Finance International - Fund Awards 2016

Fund Awards 2016 12 Best Ecology Equity Fund (3 Years): Schroder ISF Global Climate Change Equity Schroders is a global asset manager with £343.8 billion of assets under management and offices in 27 countries. As part of our series on the firm we examine its award winning fund, Schroder ISF Global Climate Change Equity, and invited its co-portfolio manager, Simon Webber, to tell us more. Company: Schroders Web Address: www.schroders.com Address: 31 Gresham Street, London, EC2V 7QA Climate change is a long term-theme underpinned by government policy and regulation intended to de-carbonize the world’s economies. These efforts will have a profound effect on companies’ sales, costs and competitive advantage across industries; changes that will ultimately be reflected in financial and share price performance. Schroder ISF Global Climate Change Equity targets companies that are positioned to benefit positively from these trends. Funds such as Schroder ISF Global Climate Change Equity have in- creased in popularity in recent years as environmental awareness, and ESG considerations more broadly, have become more pertinent to both retail and institutional investors. Recognising the potential of the theme to deliver out-sized returns over time, the fund’s managers also recognise the risks of investing around an emerging and dynamic theme. Commenting, Simon outlines the fund’s approach to risk management and its significance within the investment process. “Risk appraisal is an important consideration when we think about both stock selection and portfolio construction for the fund. We make significant use of statistical analysis that allows us to better understand the risk exposures of the portfolio and sensitivity to macro and market variables. “In addition, we have also developed a proprietary framework for assessing fundamental stock risk. This framework ensures a dynamic, systematic approach to the appraisal of financial and non-financial risks of owning a stock. The analysis of Environmental, Social, & Governance (ESG) factors is integrated within our risk framework, alongside aspects such as management quality and competitive and strategic positioning. “Overall we believe this framework provides a unique insight into risk management, something that is particularly important for this fund given its exposure to emerging technologies and disruptive change.” Simon illustrates the importance of technology and regulation to the theme. “The technologies that will ultimately facilitate transition to a low carbon world are developing at such a pace that many technology-driven solu- tions are not only now available but are also increasingly commercially scalable. By way of example, the rapid development and declining costs of battery technology will undoubtedly drive widespread adoption of electric vehicles over coming years. Elsewhere, we continue to expect rapid adoption of renewable energy practices worldwide, particularly in solar but also in wind, where technological gains are helping make installation more affordable. We have selective exposure to higher quality investments in these areas, mindful of inherent industry volatility. However, we are encouraged by recent developments in the US and China to extend the subsidy regimes for both of these primary renew- able power sources.” Recognising the importance of emerging technologies, the fund is also permitted to invest across the market cap spectrum, enabling our portfolio managers to capitalise on smaller, high growth stocks, subject to the necessary deliberations about fundamental risk. The fund is also highly concentrated around its ‘best ideas’ and managed without constraints relative to its benchmark. Relative to its peers, Schroder ISF Global Climate Change Equity is more broadly diversified from a sector, industry and geographic perspective. The volatility that is therefore often seen in more focussed funds is significantly mitigated due to the diversification within the portfolio. LA16013