Enhanced income from sustainable leaders
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Enhanced income from sustainable leaders

By identifying and investing in sustainability leaders, the fund is designed to achieve income together with scope for capital growth whilst supporting positive change in the world we live in

Our belief in responsible investment is a firm and long-held one – a view that’s become increasingly mainstream in recent years. Regulatory change has provided much impetus, but so has greater awareness of issues like climate change, biodiversity loss and inequality. As a result, more investors are keen to align their investment decisions with their personal beliefs and preferences. After all, what use is achieving a long-term investment goal if the world isn’t in good shape when you get there?

Sustainability – on a sound footing

There’s also the investment rational to consider. Environmental, social and governance (ESG) related issues can have material impact on companies and the investment returns they offer. You needn’t look far to see that companies ignore ESG considerations at their peril. History is littered with examples of unsustainable operating practices costing shareholders dear. At the same time, the drive for sustainability is transforming the investment landscape and the opportunities it provides. Structural megatrends such as the energy transition away from fossil fuels and the need to make our buildings more efficient provide real and persisting tailwinds for quality ‘sustainable’ businesses leading the way.

Looking for income - mind the value traps

Historically, sustainability-related opportunities have widely been considered the reserve of investors seeking growth – a perspective we strongly believe is shifting, and with good reason. Take a traditional equity income portfolio and its constituents that are selected because they’re able to generate cash and return it to shareholders in the form of dividends. Typically, this resulted in a bias towards sectors like oil, mining and tobacco, none of which tick many (or indeed any) boxes from a sustainability perspective. Businesses in these areas are becoming increasingly challenged and we would argue that it makes sense to be wary of traditional equity income value traps.

A new look for equity income

At the same time, a raft of new sustainable income leaders is emerging and maturing. Businesses that operate sustainably and/or provide solutions to today’s sustainability challenges enjoy competitive advantage over their peers and look set to benefit from supportive tailwinds. In select cases they offer just the sort of cashflow characteristics you’d look for in a business capable of generating attractive and reliable dividends. It’s likely that the income portfolios of tomorrow will look very different to those of the past.

Enhancing Portfolio Income

We recognise that investors may be seeking an enhanced level of yield, over and above that generated by our equity component. To generate additional yield, we employ a simple derivative-based overlay strategy which is managed by our Systematic Factor Investments Team. Derivatives are a type of financial instrument that can be used to manage risk and to generate income. The overlay strategy seeks to enhance the fund yield by 2 to 4%.

AIMing for sustainability leaders

But how best to hardwire sustainability into a stock selection process? Seven themes provide our starting point with each offering long-term tailwinds to well-placed companies. Next comes an assessment of whether a company is really making a difference and here we use our Additionality, Intentionality & Materiality (AIM) framework. We look for the ‘additionality’ of innovation and the ‘intentionality’ of management to direct a business towards sustainability challenges. Thirdly, we want the ‘materiality’ of a clear linkage of revenue and sustainability opportunities. Alongside our AIM framework we also consider a company’s contribution towards the 17 UN Sustainable Development Goals and use this as a signpost for our engagement activities.

Robust fundamental analysis

Once a ‘sustainable opportunity’ is identified we work on it from a pure investment perspective. Quality is a key characteristic – for us that means a readily understandable business model with durable competitive advantage. The quality and commitment of management is key – we want to invest with proven performers who execute well and responsibly allocate capital. The price of our entry point into a business ultimately determines our return so we seek opportunities with scope for meaningful upside and use discounted cashflow to assess intrinsic value.

A differentiated portfolio

The result is a portfolio that contrasts significantly with both our MSCI ACWI benchmark and the composition of more mainstream global equity income portfolios. An emphasis on sustainable leaders within structural megatrends means our perspective is long-term and our portfolio is characterised by relatively low levels of turnover. Of course, the most important outcome of our approach is the returns we deliver to our investors and we’re confident that we’ll be able to generate an attractive income, scope for capital growth and, thanks to our engagement with investee companies, positive impact along the way.  

24 August 2023
Nick Henderson
Nick Henderson
Director, Portfolio Manager
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Enhanced income from sustainable leaders

Important Information

Key risks

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested. Screening out sectors or companies may result in less diversification and hence more volatility in investment values. Views and opinions have been arrived at by Columbia Threadneedle Investments and should not considered to be a recommendation or solicitation to buy or sell any stocks or products that may be mentioned.

 

© 2023 Columbia Threadneedle Investments. For marketing purposes. Your capital is at risk. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

The Fund is a sub fund of Columbia Threadneedle (Lux) III, a société d’investissement à capital variable (SICAV), registered in Luxembourg and authorised by the Commission de Surveillance du Secteur Financier (CSSF). English and German language copies of the Fund’s Prospectus, summarised investor rights, English, Dutch, Finnish, French, German, Italian, Norwegian, Spanish and Swedish language copies of the KID can be obtained from Columbia Threadneedle Investments, Exchange House, Primrose Street, London EC2A 2NY, telephone: Client Services on 0044 (0)20 7011 4444, email: [email protected] or electronically at www.columbiathreadneedle.com.

The Prospectus, Key Investor Information Document, Articles of Association, Annual and Interim Reports in German, as well as further information, can be obtained free of charge from our Swiss Representative: Carnegie Fund Services S.A., 11, rue du Général Dufour, CH-1204 Geneva, Switzerland, Web: www.carnegie-fund-services.ch. The paying agent is Banque Cantonale de Genève, 17, quai de l’Ile, CH-1204 Geneva. The current prices can be found at: www.fundinfo.com.

The information provided in the marketing material does not constitute, and should not be construed as, investment advice or a recommendation to buy, sell or otherwise transact in the Funds. The manager has the right to terminate the arrangements made for marketing.

Financial promotions are issued for marketing and information purposes; in the United Kingdom by Columbia Threadneedle Management Limited, which is authorised and regulated by the Financial Conduct Authority; in the EEA by Columbia Threadneedle Netherlands B.V., which is regulated by the Dutch Authority for the Financial Markets (AFM); and in Switzerland by Columbia Threadneedle Management (Swiss) GmbH, acting as representative office of Columbia Threadneedle Management Limited.

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Important Information

Key risks

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested. Screening out sectors or companies may result in less diversification and hence more volatility in investment values. Views and opinions have been arrived at by Columbia Threadneedle Investments and should not considered to be a recommendation or solicitation to buy or sell any stocks or products that may be mentioned.

 

© 2023 Columbia Threadneedle Investments. For marketing purposes. Your capital is at risk. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

The Fund is a sub fund of Columbia Threadneedle (Lux) III, a société d’investissement à capital variable (SICAV), registered in Luxembourg and authorised by the Commission de Surveillance du Secteur Financier (CSSF). English and German language copies of the Fund’s Prospectus, summarised investor rights, English, Dutch, Finnish, French, German, Italian, Norwegian, Spanish and Swedish language copies of the KID can be obtained from Columbia Threadneedle Investments, Exchange House, Primrose Street, London EC2A 2NY, telephone: Client Services on 0044 (0)20 7011 4444, email: [email protected] or electronically at www.columbiathreadneedle.com.

The Prospectus, Key Investor Information Document, Articles of Association, Annual and Interim Reports in German, as well as further information, can be obtained free of charge from our Swiss Representative: Carnegie Fund Services S.A., 11, rue du Général Dufour, CH-1204 Geneva, Switzerland, Web: www.carnegie-fund-services.ch. The paying agent is Banque Cantonale de Genève, 17, quai de l’Ile, CH-1204 Geneva. The current prices can be found at: www.fundinfo.com.

The information provided in the marketing material does not constitute, and should not be construed as, investment advice or a recommendation to buy, sell or otherwise transact in the Funds. The manager has the right to terminate the arrangements made for marketing.

Financial promotions are issued for marketing and information purposes; in the United Kingdom by Columbia Threadneedle Management Limited, which is authorised and regulated by the Financial Conduct Authority; in the EEA by Columbia Threadneedle Netherlands B.V., which is regulated by the Dutch Authority for the Financial Markets (AFM); and in Switzerland by Columbia Threadneedle Management (Swiss) GmbH, acting as representative office of Columbia Threadneedle Management Limited.

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