01 Aug 2023
The MyFolio Sustainable Index suite of funds makes it easy to align your clients’ values and investment goals. In this article, investment managers Justin Jones and Daniel Reynolds discuss the range following its first anniversary.
More than a year ago, as a result of our frequent conversations with clients, we started to become aware of rising demand for simple, low-cost investment solutions that make a conscious effort to do less harm and more good.
Having identified this gap in the market, we launched the MyFolio Sustainable Index fund range - a solution perfectly placed to meet the needs of advisers and clients ahead of sustainability-themed regulatory change in the UK.
Features
When we launched the new range, we were keen to ensure that advisers who are already familiar with the MyFolio franchise would recognise all the key characteristics they value so much.
*The new funds offer a broad range of asset classes with the same carefully defined risk outcomes, in line with how MyFolio funds have been run for over a decade.
*They also use the MyFolio investment process and of course, benefit from the expertise of the same Multi-Manager Strategies team.
*The existing MyFolio Index range forms the foundation of the MyFolio Sustainable Index funds, which also use the same long-term strategic asset allocation (SAA).
*The key difference for the MyFolio Sustainable Index range, is that we populate the five risk level portfolios with a deliberate tilt towards positive environmental, social and governance (ESG) factors. We also tilt them away from some areas to which investors might like less exposure, such as high carbon production or tobacco.
Backdrop
Last year was tough for investors, with unprecedented volatility as inflation forced central banks to hike interest rates aggressively. We also saw uncertainty in the markets as the war in Ukraine affected commodity prices across the world.
Markets continued to suffer as we went into the second half of the year, just as we launched the new range, as high inflation persisted, and interest rates continued to rise.
Fixed income assets are more sensitive to interest rate changes and although our portfolios had an element of shorter duration, or reduced interest rate sensitivity; lower risk portfolios, which have more exposure to fixed income, still suffered somewhat.
However, the fourth quarter was an improvement, with nearly all asset classes delivering positive returns, both in Growth and Defensive assets. This has continued into 2023 as the US economy has been more robust than many expected.
Performance update
Despite the headwinds, we are pleased with the way the five funds have performed. As intended, the new funds' performance pathways have been quite similar to their sister range, MyFolio Index. We've seen good returns over the full year with all portfolios delivering in terms of risk and return.
We believe the MyFolio Sustainable Index range has got off to a great start. It’s pleasing to report that our clients have been early adopters, with assets under management now up to £40 million in total across the five funds, from our base level of £5 million last June.
Trending topic
We're having an increasing number of conversations with advisers who have more clients coming to them with a specific desire to allocate at least a portion of their savings in a more sustainable manner. We're also having more meetings with clients wanting to find out how the range will fit in with their needs in a Sustainability Disclosure Requirements (SDR) world (we now think SDR will come into force next year). Even more pleasing has been the rapid growth of support as the adoption of sustainable investing continues among our underlying fund managers and with it the availability of strategies that we are able to utilise within the range.
New developments
Since launch we have introduced a new fund within our European equity exposure, and in May we helped seed a new equity fund within the US portion of the portfolios. Later in the summer we will be looking to introduce a new position within the high yield bonds section of the portfolio after working closely with colleagues in abrdn’s fixed income teams and assisting in the design of a sustainable version of a high yield fund that aligns with our own approach to ESG.
Risk warning
The value of investments, and the income from them, can go down as well as up and an investor may get back less than the amount invested. Past performance is not a guide to future results.