Square Mile’s Responsible Future portfolio was launched a month before the UK population was placed under lockdown. How has it fared since and how is the strategy set to meet future challenges?
The Square Mile Responsible Future portfolio comprises a significant number of funds that have been awarded a Square Mile Responsible rating. This rating is given to funds which explicitly aim to have a positive impact on society or the environment, as well as offer attractive returns. They fall into one of three categories: Sustainability, Impact and Exclusion. The portfolio also naturally scores well on Environmental, Social and Governance (ESG) criteria, as measured by Square Mile’s grading of these factors.
The portfolio was launched in early February this year, just before the coronavirus pandemic led to the global economic shutdown. In reaction to this event, global stock markets fell heavily between February and March, which clearly created considerable headwinds for the portfolio. Nonetheless, it held up well in what was a very challenging environment. For example, from launch until the bottom of the market in late March, the portfolio was down around 16%, which compares well to the UK stock market which fell over 30%. The portfolio has since risen strongly, and as at the end of May much of that loss has been recovered.
The portfolio was defensively positioned going into the crisis which helped performance. Furthermore, many of the underlying funds performed well, not least because they naturally had limited exposure to commodity companies – energy stocks, for example, fell heavily as a result of the dramatic drop in the oil price. Finally, the lack of emerging market exposure and a bias towards developed markets has been beneficial as many emerging market assets fell sharply during the sell-off.
We believe that responsible investing will be an area that continues to gain investor attention. This is not only due to the appeal it has to younger generations, but also because of a wider acceptance of view that responsible investing does not necessarily lead to lower returns. If anything, in our opinion, a focus on the factors which underly responsible investing could help drive superior returns.
