Australian bushfires, record global temperatures, the Black Lives Matter movement and Covid-19; H1 2020 has seen environmental, societal and financial disruption on an unprecedented scale. This has presented an opportunity for companies and investors to take pause and consider how things could change and how things should change.
Disruption accelerates change. The increase in societal and environmental stress over the past decade has gradually been gaining investor attention, corporate participation and policy leadership in areas of responsible and sustainable practice. The events of H1 2020 have accelerated this attention towards better business practices.
Q2 saw a rapid and broad-based rebound in equity and credit markets. But as the market recovery gained pace, it became increasingly evident that while Covid-19 has affected everyone, it has not affected everyone equally, and as a consequence, many governments heeded calls to “build back better” and greener. Throughout the quarter, many European countries announced policies attuned to promoting more responsible corporate behaviour. Denmark, for example, was an early mover in declaring that its state financial support package would not be available to companies registered in offshore tax havens. Similarly, France attached environmental conditionality to some of its fiscal measures including the airline industry.
More than ever, impact investing is providing a targeted way to channel wealth into building back a better society and environment. Identifying the companies, managers and solutions that are working towards maintaining a floor for society’s needs while respecting the environmental ceiling. Our methodology supports those companies investing in the “base of the pyramid”. For example, the provision of health, housing, utilities and food, sectors where earnings have been generally protected and where we have held overweight positions.
Our medium risk bespoke model portfolio has outperformed more than 15%* since November 2016, relative to ARC¹, with more than half of this outperformance occurring in H1 2020 through Covid-19 related market turmoil.
DISCRETE ANNUAL PERFORMANCE¹
The graph below shows our year-to-date performance across our main asset classes. Our bond portfolio, despite being mostly weighted towards corporate debt which has underperformed sovereign debt, has generated positive returns, and our less correlated “alternatives” have suffered relatively small declines. Our equity allocation, which comprises only 50% of the overall medium risk bespoke model portfolio, was up 8% in GBP terms in H1, substantially outperforming the ACWI through the period, which was down almost 8%.
YEAR TO DATE RELATIVE PERFORMANCE OF TRIBE PORTFOLIO COMPONENTS¹ VERSUS ACWI
By embedding impact considerations into our investment decisions, we remain focussed on the longer term as we move through a particularly volatile start to 2020. This focus has prevented the temptation towards knee jerk selling, and reaffirmed the strength of our conviction in backing particular sustainable themes such as clean energy transition and the circular economy.
As we move into H2, we remain disciplined and committed to our longer-term investment themes. We continue to look for ways to diversify our exposure to new opportunities, especially where there is a strong structural growth theme and low correlation to the wider equity and credit markets.
1 Sources: Bloomberg and ARC data H1 Jan 1st to June 30th
2 The performance of actual portfolios linked to the medium risk bespoke model may differ once we have taken into consideration a client’s individual portfolio requirements
3 Returns are calculated net of Tribe’s management fee and third-party fund costs. Dividends are paid on an accrued basis
4 From 31 October 2019 we changed our industry performance benchmark from the ARC Steady Growth to the ARC Balanced benchmark. The ARC Balanced benchmark is more reflective of our long-term Strategic Asset Allocation and is more suitable for portfolios with relative risk to equity markets of between 40-60%
IMPORTANT INFORMATION Tribe Impact Capital LLP is authorised and regulated by the Financial Conduct Authority (“FCA”). Our FCA registration details are set out in the FCA Register under Firm Reference number 756411 (www.fca.org.uk). Tribe Impact Capital LLP is registered in England and Wales (registered number OC411984) and our registered office is 14 Cornhill, London EC3V 3NR. This document does not provide you with enough information to make an informed investment decision. Neither does it constitute advice or a personal recommendation or take into account the particular investment objectives, financial situations or needs of individual clients. If you are not an existing client of Tribe Impact Capital LLP, this document is considered to be marketing material. Whilst this document may contain information about specific companies it is not an investment research report as defined by the FCA. This document is not intended and should not be construed as an offer, solicitation or recommendation to buy or sell any investments. You are recommended to seek advice concerning suitability of any intended investment decision from your investment adviser. *Past performance is not a reliable indicator of future performance; and the value of investments, as well as the income from them can go down as well as up. Investors may get back less than the original amount invested. Any type of impact investment will involve risk to investors capital and the expected environmental or social return may not be achieved. The information and opinions expressed herein are based on current public information we believe to be reliable; but we do not represent that they are accurate or complete, and they should not be relied upon as such. Any information herein is given in good faith but is subject to change without notice. No liability is accepted whatsoever by Tribe Impact Capital LLP or its employees and associated companies for any direct or consequential loss arising from this document. This document is not for distribution outside the European Economic Area.