Earlier this month we spent time at the Smith School of Enterprise and the Environment, Oxford University looking at the challenges and solutions across energy, transport, agriculture, materials and demographics.
At its core, the Sustainable Future funds offer investors a strategy that aims to back those companies that will succeed as our world becomes cleaner, healthier and safer.
But how do we find these particular businesses? How do we predict which solutions will be the successes?
One key element is to lean on experts that think further ahead: 5, 10, 20 years out.
We believe that stepping out of the day-to-day newsflow is critical if we are to make correct decisions about the shape of our future economies. Day to day, it is easy to feel that change is just a gradual extrapolation of what we do today.
Only by stepping back do we see that change is often discontinuous and very rapid. It was fascinating to hear different perspectives from leading thinkers in their field and to discuss how these could relate to the sustainable themes that underpin our investment selection.
Some key takeaways include:
- Simply moving to electricity makes energy systems much more efficient. Electric vehicles are 85% efficient at converting energy to motion whereas the internal combustion engine is barely 30%.
- Solar, wind and batteries are still seeing rapid improvements in efficiency and cost, while fossil fuels have plateaued. But the critical missing piece is long-term energy storage.
- The concern that the transition will require vast amounts of material is hugely overstated. The annual requirement for the transition is 50x less than the amount we extract for the fossil fuel system.
- There are different technologies and standards for extracting and refining resources which have a wide range of environmental and social outcomes. Circular resource use and innovation (even using plants to extract minerals) is needed to improve the impacts of mining and refining.
- Transport is evolving away from a pure focus on owned automobiles to mobility as a service. This encompasses high quality mass transport, e-bikes/scooters, ride hailing, and car pooling. This will create benefits for road safety, quality of life in cities, economy and ease of use.
- Different diets have 10-20x different impacts on energy and biodiversity, and in pure energy terms transport (or food miles) is a very small part.
- On demographics, predictions are for a peak global population of 10.3 billion (from 8.2 billion today) in 2030, followed by gradual decline. Within OECD, ageing and lower birth rates imply an increasing dependency ratio.
Overall, our time at the Smith School of Enterprise and the Environment reinforced our view that almost all the ingredients exist today for a world of plentiful energy, food, health and mobility with dramatically reduced impacts on our planet. We will continue to incorporate this longer term thinking into our investment themes to find those companies that will accelerate the move to this more sustainable future.
KEY RISKS
Past performance does not predict future returns. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.
The Funds managed by the Sustainable Investment team:
- Are expected to conform to our social and environmental criteria.
- May hold overseas investments that may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of a Fund.
- May hold Bonds. Bonds are affected by changes in interest rates and their value and the income they generate can rise or fall as a result; The creditworthiness of a bond issuer may also affect that bond's value. Bonds that produce a higher level of income usually also carry greater risk as such bond issuers may have difficulty in paying their debts. The value of a bond would be significantly affected if the issuer either refused to pay or was unable to pay.
- May encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings.
- May invest in smaller companies and may invest a small proportion (less than 10%) of the Fund in unlisted securities. There may be liquidity constraints in these securities from time to time, i.e. in certain circumstances, the fund may not be able to sell a position for full value or at all in the short term. This may affect performance and could cause the fund to defer or suspend redemptions of its shares. May invest in companies listed on the Alternative Investment Market (AIM) which is primarily for emerging or smaller companies. The rules are less demanding than those of the official List of the London Stock Exchange and therefore companies listed on AIM may carry a greater risk than a company with a full listing.
- May, under certain circumstances, invest in derivatives, but it is not intended that their use will materially affect volatility. Derivatives are used to protect against currencies, credit and interest rate moves or for investment purposes. There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions. The use of derivatives may create leverage or gearing resulting in potentially greater volatility or fluctuations in the net asset value of the Fund. A relatively small movement in the value of a derivative's underlying investment may have a larger impact, positive or negative, on the value of a fund than if the underlying investment was held instead. The use of derivative instruments that may result in higher cash levels. Cash may be deposited with several credit counterparties (e.g. international banks) or in short-dated bonds. A credit risk arises should one or more of these counterparties be unable to return the deposited cash.
- Do not guarantee a level of income.
The risks detailed above are reflective of the full range of Funds managed by the Sustainable Investment team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.
The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
DISCLAIMER
This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.
It should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets.
This information and analysis is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID) and/or PRIIP/KID, which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.com or direct from Liontrust. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.
Peter Michaelis
Peter Michaelis is head of the Sustainable Investment team, having joined Liontrust in 2017 as part of the acquisition of Alliance Trust Investments, where he was head of investment. Peter has been managing money in Sustainable and Responsible Investment for over 20 years.
