FUND FOCUS: The Alliance Trust Sustainable Future Corporate Bond fund
Medical Money Management (MMM) operates a series of risk-targeted Investment Portfolios with a bias towards Ethical, Environmental and / or Sustainability themes, each incorporating a number of investment funds, selected after significant research and fund manger interviews. We regularly provide an insight into some of the funds that we are currently using.
Why is the Fund held in the Portfolios?
Using a proprietary sustainable investment process, we aim to invest in the bonds of companies that are significantly more sustainable than the market, with strong business fundamentals that offer attractive valuations to investors. Examples of value include a product or service offering or benefiting from strong environmental or social trends, and/or superior company management as evidenced by its performance on environmental, social and governance factors.
The performance objective of the fund is to outperform its stated benchmark by 0.75% p.a. on average over rolling three year periods through the combination of credit and sector selection, as well as interest rate positioning.
What makes it different from other funds in its sector?
We believe that the fund managers’ unique investment philosophy, investment process and dedicated team set them apart from other funds in the sector.
- Philosophy and team: we believe that a rigorous sustainable and responsible process augments “traditional” credit analysis leading to superior credit returns over the long term.
- Experience and breadth: as one of the UK’s longest established sustainable investment teams gives Alliance Trust credibility combined within the market with significant investment and sustainable investment expertise.
- Recognition: Alliance Trust are recognised as industry leaders, evidenced by a number of awards for excellence in the field of sustainable investments and recognised market leading capabilities in sustainable investment.
The outlook for the Fund
A key risk for the UK will be the up-coming referendum on membership of the European Union. This will create a great deal of uncertainty and most likely volatility within both the government bond market and for sterling in the lead up to the event. The fund managers do not believe that the market is currently pricing in this risk and therefore believe it to be another reason to maintain their underweight position to interest rate risk.
The outlook for sterling corporate bonds remains positive in their view. The widening of the spread between government and corporate bond yields witnessed over 2015 and the beginning of 2016 coupled with a positive economic outlook, robust fundamentals and minimal issuance of new bonds should be supportive for sterling corporate credit.
The Fund Managers
Stuart McMaster (left) joined Alliance Trust in January 2010. Stuart started his career at Standard Life Assurance in 1980 and performed a number of roles before becoming an Investment Manager in the Fixed Income and Cash Management team in 1986. In 1992 he moved to Scottish Widows as a Portfolio Manager with responsibility for corporate bond management across a number of clients alongside the management of cash funds. During his time at Scottish Widows Stuart assumed management responsibility as Head of Credit, moving on to become Head of Bond Fund Management and latterly to Head of Aggregate Bond Fund Management, where he was responsible for £8bn of assets.
Kenny Watson (centre) joined the firm in August 2013. Prior to this, he worked for Ignis Asset Management for 15 years, specialising first in UK smaller companies, before moving to the fixed income team in 2004 where he was responsible for the sub-investment grade bond portfolios including the High Income Bond Fund. Prior to focusing on sub-investment grade bonds, he was part of the team managing the investment grade life company mandates. He started his career at KPMG after qualifying as a chartered accountant, before joining Murray Johnstone as a trainee fund manager in UK equities in 1994. Kenny has a BA in Accounting & Economics from the University of Strathclyde, is a Chartered Accountant and is an Associate of the UK Society of Investment Professionals.
Aitken Ross (right) joined the Alliance Trust Graduate Programme in September 2010 after graduating in Accountancy & Finance (First Class Honours) from Dundee University and subsequently completing an MA in International Financial Analysis (Distinction) at Newcastle University. He joined the Fixed Income team as an analyst in 2012 following successful completion of the graduate programme. Initially, he covered non-financial credit with a focus on the telecommunications sector. Over time his sector coverage has expanded and now includes the insurance sector. Aitken is a CFA charter holder, receiving his designation in 2014.
Whilst MMM tends not to consider external ratings when selecting suitable investment funds, preferring to rely on internal research and interviews with the individual Fund Management teams, it is interesting to note ratings that the Fund has received:
The entire Alliance Trust Sustainable Future Range of funds received recognition for its exceptional features by Moneyfacts, with a 5-star rating in 2013, 2014, 2015 and 2016.
The Fund was launched in February 2001, and since then has grown to £354.3m as at 31/03/2016. The graph below shows the Fund’s performance over the last five years against the sector in which the Fund sits, being the Sterling Corporate Bond Sector.
MMM would like to thank Alliance Trust for its assistance in the compilation of this Fund Focus article.
Please note that past performance is no guarantee of future performance and that the value of units held, and any income derived from them, may fall as well as rise. Where a fund holds assets outside of the UK, fluctuations in exchange rates will affect the value of the investment.
This article should not be taken as advice or as a recommendation to invest in the Fund. The Fund is selected by MMM’s Investment Committee as a constituent of a series of risk-targeted portfolios. The Fund has particular characteristics that enable it to blend with other funds within the portfolios. Advice should be sought before investing in the Fund. The Fund may not be suitable for all investors, particularly if held in isolation.