Four Janus Henderson funds are welcomed to The Big Exchange. Read the background to the fund manager and get a summary of the fund assessments
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Janus Henderson was formed following the merger of Janus Capital Group and Henderson Global Investors in 2017. The Henderson brand has, however, been present in the UK since 1934.
The firm is a founding member of the UN Principles for Responsible Investment (PRI) and since 2007 has been a Carbon Neutral business. It has a heritage of incorporating ESG (Environmental, Social & Governance) criteria into the investment process, having been one of the first asset managers to launch a sustainable fund in the early 1990s.
A Responsible Investment Policy sets out their approach to ESG issues, including voting policies, and an Ethical Oversight Committee meets four times each year to oversee the development and implementation of the avoidance criteria. Screening is monitored and checked by Vigeo Eiris, one of the largest independent sustainable research specialists.
Company engagement forms an important part of the process and meetings cover a wide range of topics. Feedback is given to companies and improvements in performance sought where considered necessary. All investments must comply with the United Nations Global Compact (whose 10 principles cover human rights, labour, the environment, and anti-corruption).
We are pleased to welcome four Janus Henderson funds to The Big Exchange: three are managed by the sustainable funds team, headed up by Hamish Chamberlayne, whilst the fourth sits with the specialist technology team. The fund managers are supported by a global team of ESG experts.
An outline of their key features is provided below, along with an example of a company that each fund invests in to show you how your money can count for more.
The aim of this fund is to produce long-term capital growth (over 5 years or more), and a growing income, from companies of any size and in any industry worldwide.
Investments will only be made in companies whose products and practices are considered to enhance the environment and society, thereby contributing to a sustainable global economy. The first question they ask is whether ‘the world is a better place because of this company’. The manager also takes a low carbon approach.
The fund avoids companies that negatively impact the environment or society and are contrary to the UN Sustainable Development Goals (SDGs). Exclusions encompass fossil fuels, tobacco, weapons, alcohol, meat and dairy production, fast food and sugary drinks, toxic chemicals and fur.
The focus is on four environmental and social megatrends (population growth, resource constraints, ageing populations and climate change). These translate into 10 investment themes including: clean energy, water management, sustainable transport, safety, quality of life, knowledge & technology, and health.
From the carefully screened universe, the managers construct a high-conviction portfolio. An annual sustainability and quarterly impact report provide detail on companies held and how they align with the themes adopted. We think this would benefit from more data on impact outcomes so the fund scores 2 out of 3 for both positive influence and transparency. 2
The fund has 54 holdings with the biggest exposure being to the US (60%), Japan (8%) and Canada (5%). The largest sector weightings are Information Technology, accounting for 43% of the portfolio, Industrials at 16% and Financials at 13%. The fund offers significant exposure to technology innovations that provide solutions to the challenges of the modern world yet avoids contentious stocks such as Amazon and Meta (Facebook).1
The fund maps most closely to SDG 9 (Industry, Innovation & Infrastructure), SDG 12 (Responsible Consumption & Production) and SDG 11 (Sustainable Cities & Communities). These represent 16%, 13% and 8% of the portfolio respectively.2
We believe that the disciplined and proven approach, executed by a highly experienced team, and the impressive level of reporting justifies the high silver medal awarded.
Evoqua Water Technologies has developed ways to remove impurities from water (purification), which are preferable to neutralising them by the addition of chemicals. It also offers solutions for waste treatment and reuse which it sells to utilities supplying homes and industry. Evoqua’s products and services help their customers reduce costs through more efficient use of water, as well as ensuring they meet regulatory requirements and environmental sustainability objectives. Effective management of water resources is vital due to pressure from both the supply side (shortages exacerbated by climate change) and the demand side (increasing usage in agriculture, industry, and residential areas).
This multi asset fund aims to deliver capital growth over the long term (five years or more) from shares and bonds of companies and issuers, across a range of industries. It typically has a significant allocation to the UK as well as exposure to other countries.
The fund is actively managed with reference to its benchmark, the IA Mixed Investment 40-85% Shares sector, which limits the level of exposure it may have to company shares. However, the managers have freedom to vary allocations between different investments within the constraints of the sector.
The managers will only invest in companies which demonstrate responsible behaviour and careful management of ESG (Environmental, Social and Governance) risks. Holdings must be compliant with the UN Global Compact and the managers avoid businesses that could have a negative impact on the development of a sustainable global economy. This includes activities such as fossil fuels that stand to be disrupted by the transition to a low-carbon economy.
Equally, the team seeks companies that should benefit from key sustainability trends such as the energy transition, improving healthcare, and the move to a circular economy. The global shares portion of the fund follows the Global Sustainable Equity Fund’s approach, described above, to identify sustainable businesses which provide solutions to environmental and social challenges. The UK equities (shares) and fixed interest (bonds) portions of the portfolio focus on responsible practices.
The fund is very well-diversified and currently has 216 holdings, spread across shares, bonds (loans), cash and other investments. US Equities accounts for the largest geographic exposure, at 42% of the portfolio, whilst 32% is in the UK and 5% in Japan. The main industry exposures are Technology at 23%, Financials at 15% and Industrials at 11%. Specialist Credit holdings account for 15%. 1
The fund is notably aligned with SDG 3 (Good Health & Wellbeing), SDG 9 (Industry, Innovation & Infrastructure) and SDG 12 (Responsible Consumption and (Production). These represent 9%, 10% and 8% of the portfolio respectively.2
On the downside, we found no evidence of engagement at the fund level, and there was no engagement, sustainability or impact report, or justifications of holdings, provided. That said, Janus Henderson participates in collaborative initiatives including the CDP (carbon disclosure) system, Climate Action 100+, and Access to Medicine Index. The fund scores 1 out of 3 for positive influence and 0 out of 3 for impact evidence.
Despite these shortfalls, we believe the thorough process, with rigorous exclusion criteria and a clear focus on positive solutions, warrants a silver medal.
Adobe is a US technology company that develops software and services for content creation and measurement of digital marketing. Its products help to drive the exchange of information, bringing about new ways of solving social and environmental problems. One of Adobe’s largest end markets is education. The ongoing shift to digital media allows a reduction in the use of natural resource-derived materials, such as paper. Adobe is transforming its business to a cloud-based subscription model which has a positive environmental impact by using renewable energy to power its datacentres. This enables customers to reduce the energy intensity of their activities and thereby their carbon emissions.
The aim of this fund is to provide income, with prospects for capital growth, from a portfolio of UK equities (shares in companies). It targets a yield above that of the FTSE All Share index from a well- diversified portfolio of companies yielding between 1.5% and 6% per annum. The historical yield3 is currently around 3.6% per annum1 although this is not a guide to future returns.[LR1]
The fund was launched 25 years ago as an ethical strategy with strict exclusions, notably alcohol, gaming, defence, and tobacco. It has evolved to include companies that are responsibly managed in relation to ESG (environmental, social and governance) factors whilst still avoiding any that could have a significant negative impact on people, the environment, or animals. The fund is low carbon, with no oil, cement, or mining stocks.
This approach differentiates it from many of its peers in the UK Equity Income sector which may have high exposure to mature industries, such as oil and tobacco, where high dividends are commonplace. Instead, the managers focus on sectors with strong cash flows and the potential to grow dividends over time. There is a bias to large and medium-sized UK companies, although the manager has flexibility to invest in smaller companies too.
The fund is diversified across industries, with the largest exposures being to Financials which represents 32% of the portfolio, Consumer Discretionary 15% and Healthcare 13%.1 Financials tend to benefit from a rising interest environment and the manager is also finding opportunities in utilities which are well-placed for decarbonisation and offer attractive yields.
The funds maps most closely to SDG 3 (Good Health & Wellbeing), SDG 6 (Clean Water and Sanitation) and SDG 9 (Industry, Innovation & Infrastructure). These represent 13%, 6% and 5% of the portfolio respectively. 2
A quarterly voting and engagement report is produced covering the companies engaged with, the topic and the outcome. Engagement is on a selective basis and Responsible Investment reporting focuses on the environmental footprint rather than measurable impact so the fund scores 1 out of 3 for both positive influence and transparency. 2
Overall, the process is thorough with a clear intention to identify sustainable business models, integrate ESG factors, and engage with holdings. The focus on exclusions, above average operational practices and environmental solutions underpins our bronze medal award. [LR2]
The biggest holding in the fund currently is global pharma company AstraZeneca which develops prescription drugs in the fields of oncology, cardiovascular, gastro-intestinal, neuroscience, respiratory and inflammatory diseases. The firm is committed to widening access to sustainable healthcare and it supports disease prevention and public health programs. For example, its COVID-19 vaccine, vital to fight the pandemic, was initially distributed at cost to maximise access (and this will continue in poorer countries). The company mission is a future where all people have access to sustainable healthcare solutions for life-changing treatment and prevention.
This recently launched fund aims to deliver long-term capital growth by investing in technology-related companies that contribute to positive environmental or social change, thereby having a positive impact on the development of a sustainable global economy.
The fund is actively managed by an experienced technology team, including a dedicated sustainability research analyst. Lead Fund Manager, Richard Clode, believes that technology has a critical role to play in helping to democratise access to services, reduce inequality and improve quality of life.
The managers seek companies that derive at least half their revenues from the fund’s eight identified sustainable technology themes and also align with the UN’s Sustainable Development Goals. They believe a sustainable future requires innovation and disruption in clean energy, transport, health, education, communication and financial inclusion.
Fossil fuels and other carbon intensive industries are excluded and at least 20% of portfolio holdings must have committed to being carbon neutral by 2030. Investee companies must also demonstrate best in class practices, to ensure a ‘technology for good’ portfolio.
The sustainability objective means the portfolio looks somewhat different to a typical technology fund with less exposure to the well-known mega caps and more to mid and small sized emerging companies which are harnessing technology to provide solutions to the challenges facing the planet.
Given its thematic nature the fund is fairly concentrated, with 53 holdings of which the top 10 represent around 30% of the portfolio. The US, renowned as a leader in technological innovation, accounts for 82% of the portfolio, with Canada 4% and Germany and the Netherlands around 3% each. 1
At a sector level, clearly all the holdings are technology related but this can be broken down into semiconductors and semiconductor equipment at 29% of the portfolio, software at 23% and IT services at 11%. 1
The fund is most aligned with SDG1 (No Poverty), SDG 9 (Industry, Innovation, and Infrastructure) and SDG 12 (Responsible Consumption and Production). These represent 8%, 18% and 10% of the portfolio respectively. 2
Given the fund is relatively new there is no engagement activity at the fund level yet, however, there is clear evidence of engagement and advocacy at the firm level. At present, the only report is an explanation of the sustainability approach, but we do expect some form of engagement reporting. For now, the fund scores 1 out of 3 for Positive Influence and 0 out of 3 for Transparency.
Overall, however, we consider the clarity of the investment process and the fact that over half the portfolio (54%) is invested in positive solutions warrants a silver medal. 2
The fund’s largest holding is Microsoft, one of the world’s leading providers of computer products and services which are used in many ways for the benefit of the environment and society. For over 4 decades, Microsoft has developed software that is universal and easy to use, widening access across society. Indeed, its products are used by over 1.2bn people worldwide, with applications including education, energy, water, agriculture, construction, and transport. Furthermore, its carbon neutral Azure Cloud platform enables businesses to decarbonise their energy intensive computing operations. Microsoft’s mission is to empower every person and organisation on the planet to achieve more by building best-in-class platforms and services for a mobile-first, cloud-first world.
Sources
1 Source: Fund factsheets 31 January 2022
2 Source: TBE assessment November 2021.
3 The historical yield reflects distributions declared over the past 12 months as a percentage of the mid-market share price, as at 31/01/2022. It does not include any preliminary charge and investors may be subject to tax on their distributions.
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.
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