Triodos Pioneer Impact Fund invests in small and medium-sized companies offering sustainable solutions. Strict screening, low correlation with other asset categories and a strong risk-return profile are key words.
There are not many investment funds that focus on small and medium-sized companies and apply strict sustainability criteria. Triodos Pioneer Impact Fund takes this one step further and invests exclusively in companies that demonstrably contribute to the transition to a sustainable economy. The result is a concentrated portfolio of impact leaders.
The fund's biggest trump card? Fund manager Dirk Hoozemans does not need to consider this for long: the fund's low correlation with the market and its fundamentally different investment approach compared with other (sustainable) investment funds. "We do not track an index but construct the portfolio bottom-up. As a result, we diverge considerably from the MSCI World Small & Mid Cap Index. Around 40% of the portfolio is invested in the US, which has a weight of around 60% in the benchmark. We invest almost 20% of our assets in Japan, compared with 10% for the benchmark."
Different from other investment funds
Due to the focus on small and medium-sized companies with a sustainable nature, well-known names such as Facebook, Apple, Amazon, Netflix and Alphabet (Google) are not part of the portfolio. "Nowadays, many funds invest in the same ten stocks that have increasingly come to dominate the equity markets. The same thing has happened for sustainable funds: almost everyone holds the same large companies."
On top of that, the Triodos selection is forward-looking. "Whereas many other sustainable funds rely on ratings that are based past performance, we focus on what lies ahead. What impact will the behaviour of a company have regarding the future? Many funds carry out a retrospective sustainability check, but we make our selection ‘at the front door'. We are not interested in the winners of the past. What we look for are the winners of tomorrow. These tend to be small and mid-cap companies", explains Hoozemans.
A solid building block for a sustainable investment portfolio
The limited exposure to large caps makes the strategy an attractive means of diversifying institutional portfolios, says Hoozemans. In this context, the active divergence from the benchmark also offers added value. "Moreover, investing in smaller and less researched companies means that you can achieve a great deal by doing your homework, through engagement and by means of active ownership. That potential impact appeals to a lot of investors."
In addition, the fund's strict screening aligns with the growing importance of ESG in many investment portfolios. Selected companies must make a positive contribution to the seven themes that Triodos distinguishes as part of the transition to a sustainable economy. These themes are closely aligned to the UN's Sustainable Development Goals (SDGs).
Companies are selected based on a comprehensive and integrated assessment of their financial, social and environmental performance, as well as their corporate governance. Hoozemans: "In doing so we apply the Minimum Standards defined by Triodos, which are among the strictest in the sector. This means that companies that offer sustainable solutions but nevertheless do not meet these standards, for instance regarding animal testing, hydrocarbons or biodiversity, will not be eligible for investment after all."
What about risk and return?
In terms of risk and return, the perception of sustainable and impact investing has improved, says Hoozemans. "Whereas in the past there was a tenacious myth that sustainable investing meant lower returns, it is now recognised that sustainable investments can generate similar or even higher returns. Because you invest in solutions that the world really needs. This not only improves the return potential, but you also remove significant risks from the portfolio. The risk of stranded assets, for instance."
Last year, the pandemic proved a tough test for investors. The fund weathered the storm well, with a positive return of 22.2%, versus a return of only 6.3% for the MSCI World Small & Mid Cap Index. "Oil stocks, banks and insurance companies were among the stocks that were hit hard, and we don't own those," says Hoozemans. An overview of risks related to an investment in the fund can be found in the KID and the prospectus.
Year to date, the fund has not managed to keep up with the broader market. Small and medium-sized companies tend to be growth stocks and in the first couple of months of this year it was the value factor that staged a strong performance, explains Hoozemans. "During this rotation from growth to value, the fund so far this year has been treading water."
Valuations have risen sharply, and a correction cannot be ruled out, which makes Hoozemans cautious for the rest of 2021. "We have slightly raised our cash position in order to build in some resilience in case of a downturn."
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Disclaimer
This is a marketing communication. This is not a contractually binding document. Please see the prospectus and the KID of the Triodos Pioneer Impact Fund and do not base any final investment decision on this communication alone. Past performance does not predict future returns. The value of your investment can fluctuate as a result of the investment policy. Triodos Pioneer Impact Fund is managed by Triodos Investment Management. Triodos Investment Management holds a license as alternative investment fund manager and UCITS and is under the supervision of the Dutch Authority Financial Markets and the De Nederlandsche Bank."
