The Heptagon Future Trends Fund focuses on the most important sustainability trends that are likely to have a major impact on our future. We are pleased to offer this fund on the Big Exchange, and it has been awarded a silver medal rating.
Heptagon Capital is an independent firm founded in London in 2005. The Heptagon Future Trends Fund was launched in January 2016 by Fund Manager Alex Gunz who was previously a top-rated analyst at several large firms including Credit Suisse and JP Morgan. The strategy focuses on the most important sustainability trends that are likely to have a major impact on our future. We are pleased to offer this fund on the Big Exchange, and it has been awarded a silver medal rating.
Heptagon Capital is a signatory of the United Nations Principles for Responsible Investment (PRI), demonstrating a clear commitment to integrate ESG considerations into their investment practices and ownership policies. Every fund manager must consider whether ESG risks could have a negative impact on the performance of an investment.
Alex Gunz believes that this incorporation of ESG factors in his investment process may help to reduce long-term risk and increase the opportunity for enhanced long-term returns. His approach to investing in the trends of the future requires him to think responsibly, a philosophy which is firmly embedded at Heptagon.
The Fund aims to deliver consistent and sustainable returns, ahead of the MSCI World Index over the medium term, from a portfolio of global equities.
The portfolio is highly concentrated with around 22 holdings, reflecting the managers’ conviction in his stock selection, and is unconstrained by industry, size, or geography. That said, it contains a range of business activities offering exposure to the key trends which he believes will help shape the future. These trends naturally align with the SDGs (Sustainable Development Goals) and are ones which the manager believes will grow in importance regardless of the economy and regulation.
The trends are translated into investment themes on which in depth analysis is undertaken to find companies best positioned to solve global sustainability challenges. These are found in activities such as alternative energy, electric vehicles, food innovation, cybersecurity, digital revolution, cashless payments, online society, edtech, digital infrastructure, healthcare, and pet ownership. The largest industry sector exposures are to technology (34% of the portfolio), healthcare (17%) and consumer discretionary (11%).1
The fund will not invest in companies with significant revenues from controversial activities, including oil, mining, gambling, weapons, or tobacco. The team looks for companies that exhibit positive environmental and social characteristics such as: efficient management of pollution and water usage; efficient waste management; transparency of environmental and social reports; absence of material controversies; human rights considerations; overall good environmental practices, and employee diversity.
The manager has developed a proprietary ESG checklist and scores all portfolio holdings across 22 ESG metrics using multiple external data sources. One additional factor considered in respect of environmental objectives is over what time horizon investee businesses intend to commit to carbon neutrality; in other words, when they believe their carbon emissions will have been compensated for via (carbon) offsetting projects.
As active investors, the 5-strong investment team engages with the management of companies to develop a full understanding of the business and discuss any ESG concerns. The approach is reviewed on a regular basis to ensure that the funds’ ESG analysis and engagement activity continues to facilitate sustainable investment.
A commitment to sustainable investing is clearly an integral part of the investment process and the focus is on individual stock selection, rather than wider economic drivers.
The fund produces a comprehensive sustainability report on a quarterly basis although there is no impact outcomes reporting. However, the latter is to be expected given this is not an impact fund. There is some evidence of engagement at a fund level in the sustainability report, with a few examples given and an overview of the areas they have been focusing on recently.
The report also provides updates on proxy voting and the sustainability progress of companies. That said, we feel there is an absence of clear targets, as well as the lack of evidence of outcomes, especially at an aggregate portfolio level. There appears to be limited advocacy or collaborative engagement at a group level, such as participation in initiatives or collaborative organisations, other than the group being a signatory to the UN PRI.
The fund therefore scores 1 out of 3 for positive influence and impact evidence. To improve on these scores, we would like to see more fund level information on themes/solution exposure and justifications provided for all holdings, along with data on engagement activity progress and outcomes.
The fund is most strongly aligned with SDG 3 (Good Health & Wellbeing) at 21% of the portfolio. There is also close alignment with SDG 2 (Zero Hunger) at 10% and SDG7 (Affordable and Clean Energy) at 12% of the portfolio.2
The fund has approximately 63% of its portfolio invested in companies which we have classified as offering solutions to social and environmental challenges and has a low exposure to companies involved in controversial activities which believe warrants the silver medal award.2
Mowi is a supplier of farm-raised Atlantic salmon. Seafood has a lower carbon footprint than land-sourced proteins and is rich in omega-3 fatty acids. The firm’s ‘Blue Revolution Plan’ aims to deliver a tasty, nutritious, and affordable product without harming the planet. The Plan focuses on operating an eco-efficient value chain by raising salmon in harmony with nature; for example, soy for feed is sourced from 100% deforestation-free supply chains. Mowi was rated, by Coller FAIRR, as the most sustainable protein producer in the world for the third year in a row.3 It was also recently awarded a special recognition award at Compassion in World Farming’s ‘Good Farm Animal Welfare’ Awards.4 By setting high standards for environmental stewardship and innovation the company believes it can make a positive impact and preserve resources for future generations. There is a target to reduce total carbon emissions by 35% up to 2030 and 72% up to 2050 whilst by 2025, 100% of their plastic packaging will be reusable, recyclable, or compostable.5
1 Fund factsheet @ 28 February 2023
2 The Big Exchange Impact Assessment, June 2022