Tilney Sustainable Managed Portfolio Service team adjust portfolios to reflect changing market conditions

by | May 4, 2022

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The Tilney Sustainable Managed Portfolio Service (MPS) team has sold their exposure to Lyxor US TIPS in favour of Cash and short-dated UK Gilts, while at the same time adding to their short-dated investment grade credit and absolute return funds in the more risk averse portfolios.

In the re-balance, the Sustainable MPS team also purchased positions in Schroder Global Sustainable Value and Baillie Gifford Responsible Global Equity Income.

The former “has been added to the portfolios to reduce the heavy bias within the portfolios to Growth,” while the latter has been added to take advantage of “best-in-class companies which are growing whilst also being able to support paying a dividend.” 

Genevra Banszky von Ambroz, lead manager of Tilney Sustainable MPS commented: “Interest rate and inflation expectations have risen sharply this year, exacerbated by the invasion of Ukraine by Russia at the tail-end of February. The ramifications for asset values drove changes across the portfolios, as did efforts to dampen factor and single name risk and improve overall sustainability characteristics.

“By selling the US TIPS exposure in favour of Cash and short-dated UK Gilts, as well as adding to our short-dated investment grade credit and absolute return funds in the more risk averse portfolios, we have further shortened the duration profile of the portfolios and therefore their sensitivity to interest rate risk.”

 Details on the funds added and sold in the models is covered in the table below: 

Fixed Income

Fund Action Rationale
Lyxor US TIPS Sold Inflation-linked bonds have performed extremely well relative to conventional positions this year. As a result, US TIPS no longer offer the protection they did 6 months ago. They were sold in favour of a combination of Cash, iShares 1-5 Year Gilt ETF and Brown Sustainable Total Return Bond.
Rathbone Ethical Bond Sold We have a preference for the short end of the yield curve within the Investment Grade allocation; Rathbone Ethical Bond has a duration which is similar to that of the market. Proceeds were used to fund the new position in Brown Sustainable Total Return Bond.
iShares 1-5 Year Gilt ETF Purchased Yields on short-dated Gilts are attractive relative to Cash given rising interest rate expectations. The ETF was added to portfolios at the lower end of the risk spectrum which have relatively high allocations to Cash.
Brown Sustainable Total Return Bond Fund Purchased This is a short duration, lower volatility new launch from the team which previously built the global fixed income business at Janus Capital. The fund takes a benchmark agnostic long-term, fundamental approach to investing across liquid fixed income and FX markets, whilst generating a positive impact.

Equity

Fund Action Rationale
Stewart GEM Sustainability Sold or reduced weighting Consolidated into Stewart Asia Pacific Sustainability fund due to increasing commonality of holdings for the higher risk models and sold the exposure entirely in the lower risk models.
WHEB Sustainability Sold Sold in favour of Schroder Global Sustainable Value, which has been added to the portfolios to reduce bias to Growth. This fund is managed by Schroders’ Global Value Team who look for ‘ESG Leaders’ within the cheapest 20% of the MSCI World. It is worth noting the bar for what is considered an ESG Leader is high, and the team supplement this with active engagement on every name in the portfolio.
Fundsmith Sustainable Sold Sold in favour of Baillie Gifford Responsible Global Equity Income, which is managed by a well-established and resourced team at Baillie Gifford. The team look for best-in-class companies which are growing whilst also being able to support paying a dividend. The sister fund, Global Income Growth focuses solely on identifying companies with sustainable business models, whilst Responsible Global Equity Income goes a step further by conducting a forward-looking sustainability assessment, which considers the impact of the company’s goods and services, the quality of the management team, and the ambition of that team to further or improve current impacts generated and employs exclusions.
Greencoat UK Wind Sold Sold in favour of additional diversification via Cordiant Digital Infrastructure and Octopus Renewables. While renewables have performed very strongly recently, largely thanks to rising energy prices, which have resulted in higher revenues from the sale of energy generated into the market, as well as a greater near-term necessity to reduce reliance on hydrocarbons, much of which are supplied by Russia in Europe. We continue to like the theme, but are focusing exposure on Octopus Renewables and The Renewable Infrastructure Group for geographically and technologically diversified exposure across assets in construction and operation.
Schroder Global Sustainable Value Purchased Schroder Global Sustainable Value, which has been added to the portfolios to reduce the heavy bias within the portfolios to Growth. This fund is managed by Schroders’ Global Value Team who look for ‘ESG Leaders’ within the cheapest 20% of the MSCI World. It is worth noting the bar for what is considered an ESG Leader is high, and the team supplement this with active engagement on every name in the portfolio.
Baillie Gifford Responsible Global Equity Income Purchased Baillie Gifford Responsible Global Equity Income, which is managed by a well-established and resourced team at Baillie Gifford. The team look for best-in-class companies which are growing whilst also being able to support paying a dividend. The sister fund, Global Income Growth focuses solely on identifying companies with sustainable business models, whilst Responsible Global Equity Income goes a step further by conducting a forward-looking sustainability assessment, which considers the impact of the company’s goods and services, the quality of the management team, and the ambition of that team to further or improve current impacts generated and employs exclusions. The fund also has a dedicated ESG specialist who is involved in all stock discussions and has the right of veto over names going into the portfolio.

Alternatives

Fund Action Rationale
Cordiant Digital Infrastructure Purchased Cordiant Digital Infrastructure IPO’d in January 2021 and is a Guernsey domiciled investment company which focuses on mid-market digital infrastructure assets (mobile towers, fibre-optic networks and cloud) across Europe and North America. It is managed by a very experienced, well-resourced and aligned team.
International Public Partnerships Purchased Purchased with the proceeds of the sale of Octopus Renewables; adding exposure which already existed across the range to social infrastructure assets.

 

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