Triodos Investment Management (Triodos IM) aligns the portfolios of its Impact Funds with its transition-themed investment strategy. It aims to make positive impact by investing in listed companies that support sustainable solutions and by being active stewards of the planet and society.
After a strong performance in 2019, the funds were affected by Covid-19 in 2020, in line with general market developments.
We hear from Triodos IM’s impact equities and bonds director, William De Vries, on the recent performance of impact funds, how we need to find new ways of thinking about economic growth and how impact investing is key to creating a more sustainable, less vulnerable economy.
How have the events of 2020 affected the global stock market?
Covid-19 created a crisis situation where market volatility intensified. Stock markets began to decline as the virus progressed from an isolated problem in China to a global challenge. When measures were taken to prevent further spread, these severely limited economic activity. In addition to the uncertainty surrounding the coronavirus, a conflict arose between Saudi Arabia and Russia, resulting in a significant drop in the oil price.
These combined factors caused increasing uncertainty among investors and adjustment of economic expectations, resulting in lower prices and more price fluctuations.
We always keep a close eye on the financial markets. This certainly applies to our fund managers who are involved in investing on the stock exchange. Every day we actively look for the right time to buy or sell certain shares or bonds.
However, we are also long-term investors – we do not buy and sell in order to achieve returns in the short term, instead aiming to create long-term impact and returns. In addition, we have been anticipating a fall in stock prices for some time.
How have the Triodos impact investment funds performed during the pandemic?
Responding to declining economic developments and challenging equity market valuations, our fund managers took prudent steps early on to minimise the impact of the Covid-19 pandemic on our impact funds. This defensive positioning proved to be a successful strategic move – on a relative performance basis we did tremendously well over the past few months, and we continue to do so.
Indeed, this has been seen across other ethical investment funds. Early industry analysis suggests that environmental, social and governance (ESG) investments were more resilient during the Covid-19 market crash. It's important to remember, however, that past perfromance figures are not a guide to future returns.
Cumulative performance chart: Global Equities Impact Fund
Six months as per end of May 2020
Cumulative performance chart: Pioneer Impact Fund
Six months as per end of May 2020
How has global stock market volatility affected performance against benchmarks?
In April 2020, European stock markets were on average around 20% lower than their 2019 year-end value. By comparison, the US Nasdaq had recovered into positive territory with the value of tech companies such as Netflix, Google, Amazon and Facebook stocks skyrocketing.
It wasn’t appropriate for us to take advantage of the US market upturn as these tech companies do not meet our positive impact criteria, nor our minimum standards. We don’t have positions in these stocks and because they did very well, this had a negative effect on our funds in relative terms.
On the upside, however, we also exclude the entire oil and gas sector, airlines and almost all of the financial sector. These stocks performed very poorly, so on balance, the funds continue to achieve relative outperformance against their respective indices year-to-date.
What are your thoughts on rebuilding the economy?
We need to create a society that can cope with lower economic growth and we have to think about setting up the economy in a way that is more sustainable and less vulnerable to ecological disasters.
We are trying to change the financial world and how people look at the role of companies and economic development. It’s good for people to ask questions and think critically about it. The growing awareness that things have to change is a worldwide phenomenon and that gives me confidence that they ultimately will.
What is the future outlook for Triodos impact investment funds?
Despite everything going on, we are seeing investments on a daily basis. We recently celebrated a 100 million Euro net inflow into our funds. Investors, especially those in Western Europe and the Nordics are becoming more convinced of the need to invest in a more impact-conscious way. And that’s exactly what we do.
We will continue to focus on doing the things we do and doing them very well. We plan to build on the successful track record of the transition-themed investment strategy and, as an impact investor, we will continue to go beyond ESG. We want to prove that what we do, and the way we do it, benefits both a sustainable society and the investment return of our clients.
Shimano: a success story
Shimano manufactures bicycle components and encourages commuting by bicycle. It has been specifically selected under Triodos IM’s ‘Clean Planet’ theme for inclusion in the Triodos Pioneer Impact Fund because it provides products for environmentally friendly transportation, which reduces energy use and air pollution. The Japanese company also has specific guidelines for its suppliers encouraging them to develop products with a reduced environmental impact.
In recent weeks, shares have surged as people increasingly view bicycles as a safe and reliable method of transportation as lockdown eases across Europe. You can read more about recent performance in Bloomberg’s profile of Shimano.
Discover impact investing with Triodos Bank
Like all investments, your capital is at risk – investments can go down as well as up, currency fluctuations can affect the value of your investment and you may not get back what you put in.
You should ask an independent financial advisor if you're unsure which investment is right for you. Triodos Bank doesn’t offer financial advice.
Find out more about the Triodos Impact Investments funds.