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March 11, 2024

Introducing Castlefield

The Big Exchange announce the introduction of several new funds from Castlefield.

This article does not constitute investment advice. If you are unsure whether an investment is suitable for your circumstances, you should contact an independent financial advisor.

Introducing Castlefield

Castlefield, founded in 2002 and co-owned by its employees, has a mission ‘to gather assets to do good and make a world of difference’. Responsible investing is fundamental to what they stand for and do, and it is why they describe themselves as ‘the thoughtful investor’.

The fund managers believe they can deliver competitive long-term financial returns as well as making a positive difference to the world by investing with a values-based approach. This entails active engagement and stewardship of each investee company to ensure its ESG (Environmental, Social and Governance) performance is consistent with their own values.

We are delighted to offer 3 funds from Castlefield, one European and two UK strategies. These include their flagship Sustainable UK Smaller Companies.

Values incorporated into the investment process

Castlefield has developed its own methodology, known as the B.E.S.T responsible investment approach, which considers non-financial ESG factors alongside traditional financial analysis to identify potential investments.

B.E.S.T stands for: Business & Financial; Environmental & Ecological; Positive Social Influence and Transparency & Governance. These values-based criteria are considered by Castlefield as not only ‘nice to have’ but key to generating sound returns. Their process is designed to identify high-quality companies with opportunities for growth at a reasonable price.

Ten themes provide a framework for assessing the positive credentials of a company: Cyber & Digital Security; Education; Financial Resilience; Employee Ownership & Responsible Business; Environmental Management; Health & Wellbeing; Resource Efficiency; Safety & Regulatory Compliance; Sustainable Infrastructure and Sustainable Supply Chains.

Castlefield has an external advisory committee for impartial oversight of how they incorporate ESG factors into their decision-making. As well as providing an independent perspective this brings an additional level of expertise and challenges the managers on their investment management and research conclusions.1

The firm is a member of the UK Sustainable Investment and Finance Association which aims to create ‘a fair, inclusive and sustainable financial system that works for the benefit of people and planet and drives positive change’.2

Our assessment

We think the B.E.S.T system is a highly effective and repeatable process which enables the managers to construct portfolios with limited exposure to controversies and which avoid harmful activities. The only controversial activity flagged for these funds relate to animal testing, which should be considered in the context of Castlefield's exclusion policy. Specifically, this excludes testing for cosmetic purposes whilst testing for medical purposes may be permitted.

Along with the strict negative screen, identifying positive themes forms an integral part of the approach. Every holding is linked to one of these themes with a justification provided within the Positive Themes Report. Although not directly linked to the UN Sustainable Development Goals, the themes form an integral part of the process. That said, we note the not insignificant exposure to what we would classify as Limited Positive Solutions and thus somewhat dilutes the 'positive themes' framework(we acknowledge that allocations differ depending on the process used)

There is a well-defined voting policy at Castlefield, with a full voting record provided monthly showing high levels of participation. Both independent and in-house research is carried out on every vote. All votes are reviewed by a fund manager before submission and rationales for 'against' and 'abstain' provided. There is evidence of engagement at a group level with individual holdings which is well recorded and evidenced, although not as comprehensive as might be desired.3

Castlefield is engaged in several collaborative initiatives including the 30% Club UK Investor Group, Business Benchmark on Farm Animal Welfare (BBFAW) and the Carbon Disclosure Project (CDP).2 Their involvement tends to be as members or signatories rather than leadership, but the group can be commended for the activist stance it takes on many issues. For example, it has put its name to several open letters and published statements to government on the cost-of-living crisis. The 3 funds score 2/3 for positive influence.4

There is detailed reporting on voting, with case studies, but more limited information on individual company impact outcomes. An ESG report is provided at a group level to a basic standard. All the funds receive 2/3 for impact evidence.4

The key features of each fund, and our assessment of them, are outlined below along with examples of companies that have been invested in.

Castlefield Sustainable UK Smaller Companies – TBE silver medal

This fund aims to achieve capital growth over more than five years, from a portfolio of 30 to 50 UK smaller companies, including those listed on the Alternative Investment Market (AIM).

The portfolio comprises carefully selected best ideas, that meet the sustainability criteria, from the Smaller Companies universe, usually defined as the bottom 10% of listed UK companies in terms of size. Investors should be aware that some businesses are at an earlier stage of development than their larger counterparts which may be associated with higher risk. The fund is well-diversified by industry sectors in the UK and the largest exposures are to industrials at 28% of the portfolio, technology at 20% and healthcare at 16%.5

The managers apply the B.E.S.T responsible investment approach described above, to ensure that every investment is sustainable. As with all Castlefield funds, the values-based approach encompasses active engagement and stewardship, something they consider particularly important for business that may be less mature.

At the time of the assessment, we estimate that around 55% of the fund is exposed to environmental or social solutions. We found the fund maps most closely to SDG 2 (Zero Hunger); SDG 3 (Good Health & Wellbeing) and SDG 16 (Peace, Justice & Strong Institutions). These represent 6%, 16% and 10% of the portfolio respectively.4

Impact Example: Tracsis

Established in 2004 as a spin-out from the University of Leeds, Tracsis is a developer of software, technology and services which solve mission-critical resource management problems within the transport sector. The firm serves predominantly rail companies and road authorities, with specific activities including train and driver scheduling, track monitoring and safety, ticketing services, passenger surveys and event transport management. Innovative solutions include smart ticketing and automated delay refunds. By improving operational efficiency, reducing costs, and improving safety, maintenance interruption is reduced, customer experience enhanced, and large transport infrastructure investment decisions optimised. Tracsis aligns with the Sustainable Infrastructure Positive Theme.

Castlefield Sustainable UK Opportunities – TBE bronze medal

The aim of the fund is to achieve capital growth over a period of more than five years from a portfolio of companies listed within the UK, using the B.E.S.T responsible investment approach described above.

The fund seeks to identify companies that can grow their profits through accessing a growing sustainability specific niche within a wider industry (such as Electric Vehicles in the automotive sector or renewables in the energy sector), having superior pricing due to technological advantage, or by owning assets which the managers consider to be undervalued.

The managers adopt an unconstrained, high conviction style of investment with typically 35-45 holdings and low portfolio turnover. They have an ‘all of market’ remit, extending from large to small companies, including some AIM (Alternative Investment Market) listed stocks. The fund is well-diversified by industry sectors in the UK and the largest exposures are to industrials at 24% of the portfolio, financials at 13% and consumer goods at 22%.5

At the time of the assessment, we estimate that around 45% of the fund is exposed to environmental or social solutions. The fund is notably aligned with SDG 1 (No Poverty), SDG 4 (Quality Education) and SDG 12 (Responsible Consumption and Production). These represent 9%, 10% and 12% of the portfolio respectively.4

Impact example: Spectris

Spectris designs and manufactures specialist measurement and testing equipment, typically used in laboratories or other highly exacting locations. Its global customer-base rely on Spectris instrumentation to keep production running, minimise downtime and wastage or to ensure compliance with precise manufacturing specifications. Other key applications for the group’s products are in wind turbines, where its vibration sensors facilitate remote monitoring of wind farms; hospitals, where life support devices and patient monitoring equipment are examples of its involvement; and the automotive sector, where the group’s testing services are used to support the development of hybrid and electric vehicles and reduce emissions. This holding aligns with the theme of resource efficiency.

Castlefield Sustainable European – TBE bronze medal

The aim of this fund is to grow its value, over 3-5 years, by investing at least 80% of its portfolio in the shares of European companies whose underlying future profit potential, the managers believe, is not yet understood by the market.

The fund invests across countries, sectors, and market capitalisation (size) in search of the best ideas from large universe of European listed companies. Using the B.E.S.T investment process described above, the fund considers a wide variety of criteria to identify companies eligible for investment. The main industry exposures are industrials at 23%, financials at 20% and technology at 18%.5

At the time of the assessment, we estimate that around 51% of the fund is exposed to environmental or social solutions. The funds maps most closely to SDG 3 (Good Health & Well-Being), SDG 9 (Responsible Consumption & Production) and SDG 12 (Industry, Innovation & Infrastructure). These represent 17%, 9% and 8% of the portfolio respectively.4

Impact example: ASML

ASML designs and manufactures lithography machines, the core equipment necessary to produce next-generation semiconductors and processers. By enabling greater production capacity, and reducing costs, it is widening access to transformative technologies, such as mobile telecoms, medical equipment, and electric vehicles. The company describe themselves as ‘the most important technology company you’ve never heard of’, reflecting their relatively low profile as an IT hardware supplier, rather than a consumer-facing tech company such as Apple. Nevertheless, ASML is aligned with established technological themes like digitalisation, 5G and cyber security, whilst emerging themes such as vehicle electrification and artificial intelligence add a further leg to this growth  opportunity and what's more have a pivotal role in driving improvements in sustainability. This holding aligns with the Employee Ownership & Responsible Business Theme.


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4 Source: TBE assessment July 2023

5 Source: Fund factsheets 31 December 2023

Please remember that when investing, making money is not guaranteed and your capital is at risk. The value of your fund can go down as well as up. Tax treatment depends on an individual’s circumstances and may be subject to change.

This article does not constitute investment advice. If you are unsure whether an investment is suitable for your circumstances, you should contact an independent financial advisor.

The Big Exchange (TBF) Limited is a wholly owned subsidiary of The Big Exchange Limited. The Big Exchange (TBF) Limited is an Appointed Representative of Resolution Compliance Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 574048).  (CaRA: 8458)

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