Discretionary Investment Management | Shannon Lancaster
15 Apr 19

Money Never Sleeps (but your conscience can take a nap) - Fund in Focus

In March 2018 our Cautious portfolios initiated a position in Rathbone Ethical Bond Fund (followed by our Growth portfolios in May 2018) so this update seems like an opportune time to review the Fund – a year down the road.

Environmental or ethical investing is now more and more at the front of clients’ minds, something which we highlighted during our March presentation. Very few bond funds take “ethical” considerations into account when looking at credit opportunities, but one which does is Rathbones.

Already a firm favourite on our advisory stockbroking desk, the Fund and its team came highly recommended. The Fund was launched initially for small conscientious clients that struggled to get ethical exposure to bond markets way back in 2004, and the investment philosophy has not fundamentally changed since then.

The Fund is run by Bryn Jones and Noelle Cazalis. It currently has £1.25bn AUM and provides UK investment-grade bond exposure; the managers describe themselves as specialist lenders as opposed to investment managers.

Investment Process
The Fund targets a high yield with a strong ethical overlay. The team approach their investment opportunities via themes (aligned with our way of thinking) and include areas such as cyber security, sustainable energy and social housing.

Cash flow and strong balance sheets are key in determining bond selection, with the team applying what they refer to as the ‘Four Cs Plus’ principles:

+ Character
+ Capacity
+ Collateral
+ Covenants (Bond covenants are a legally-binding term of agreement between a bond issuer and a bondholder. They are designed to protect the interests of both parties and so are very important when investing in this space).

The ‘Plus’ conviction is the belief that in order to achieve above average long-term performance, the team considers it must think differently to the market.

Then an ethical overlay is applied, which consists of a negative screening followed by a positive screening.

The Fund first excludes bonds issued by organisations that are materially involved in controversial activities; for example, the manufacture of alcohol, animal testing, armaments, gambling and tobacco. Firms that come under what they term “social hindrances” are more likely to come under pressure in the future.

The next stage is a positive screen which means that in order to qualify for portfolio inclusion, issuers should demonstrate progressive or well-developed practices or polices in various key areas; for example, employment, human rights, community investment or where proceeds are intended for a specific social purpose.


Firms that do “social good” are more likely to receive support.


The Fund benefits from an extra level of investment diligence through the ethical research carried out by Rathbone Greenbank Investments, the award-winning specialist ethical investment unit of the firm. The team at Rathbone Greenbank has been at the forefront of developments in the ethical investment industry since 1992, launching one of the first bespoke ethical portfolio services.

An Example
A recent addition to the portfolio is MORhomes. Whilst BREXIT is all the media fixates on, it can be easy to forget the real issues that affect so many people. Theresa May has identified the current status of the housing market as one of the greatest barriers to progress in the UK today, specifically the challenges of low housing supply and unaffordability.

MORhomes was specifically set up to enable housing associations to come together to raise finance to support the provision of social and affordable housing in the UK – these companies are not-for-profit, registered, social housing providers. There are 60 UK housing associations who will benefit from obtaining access to the public debt market (coming together as one gives them a greater opportunity than coming to market individually) so making progress in alleviating one of the biggest problems the UK faces today.

So, a year on from our investment the Fund is +2.8%, versus the Offshore Fixed Income GBP Corporate Bond sector of +2.5%, which reinforces the message we stated in our March presentation: you do not have to sacrifice returns whilst saving the planet. As the title suggests, your money has not been sleeping while it is invested with us, but you and your conscience can take a well-earned rest knowing that this fund is actively doing good in the world as well as producing strong returns.

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