A balanced fund offers the upside potential of stocks, but limits risk by also investing in bonds. "A comfortable position for investors:in who are concerned about equity market volatility," says Rob van Boeijen, fund manager of Triodos Impact Mixed Funds.
In addition to risk control, the key feature of Triodos Investment Management's (Triodos IM) balanced funds is "that they offer investors the opportunity to contribute to a sustainable future," Rob adds. Before joining Triodos, Rob worked for a traditional asset manager for many years. "In conversations with clients, I was getting more and more questions about what exactly they would invest in. They did want to make a positive financial return, but only by investing in something that didn't violate their principles. At Triodos, this is our core responsibility. We apply this belief to all of our products."
Triodos Impact Mixed Funds – three versions
The Triodos Impact Mixed Fund comes in three different designs: Defensive, Neutral and Offensive. All three versions have received the top rating of the FNG Seal 2021 with three stars.
According to Rob, however, it is also important to find the right balance between risk and return on investment. This is what distinguishes the three Triodos mixed funds managed by him: Investors:in achieve a reasonable return while limiting risk by investing in a mix of global equities and Eurobonds. "In addition, we look closely at what we are investing in and the lasting impact of that investment."
Advantages of a mixed fund
Triodos IM offers three balanced funds. The neutral balanced fund, with a 50/50 weighting of equities and bonds, has achieved an average annual return of more than 4% over the past five years (as of 31. March 2021). Since 2019, risk-averse people can also choose a more defensive option (75% bonds and 25% equities), while risk-loving investor:s can choose a more offensive portfolio (75% stocks and 25% bonds).
Mixed funds are comfortable, says Rob. The funds offer investors access to a comprehensive portfolio that matches their risk profile, all wrapped up in one product. A useful feature of the funds is that allocation must be maintained. This means that when share prices fall, the manager must increase his positions, and when prices rise, he takes part of his holdings as profit. "A lot of retail investors:inside actually tend to buy stocks after they go up a lot and sell them after they go down," Rob says. With a blended fund, this pitfall can be avoided.
Rob can deviate from the strategic asset allocation of the three funds within a certain margin, if market developments justify it.
Rigorous sustainability screening
The mixed funds meet strict sustainability criteria. "We do a detailed screening process on every investment. Each participation has a strong impact story and contributes to the transition to a sustainable economy. This is appealing to more and more investor:s," says the fund manager.
"We carry out detailed screening for every investment."
Measuring impact can be a challenge. "Some variables are measurable – such as z.B. CO2 emissions – but other forms of impact are much harder to quantify. We own shares of Adidas. How to measure the effect that wearing Adidas sneakers while exercising has on your health?"
Another example is the Japanese car manufacturer Toyota. "An early pioneer, Toyota has a 60% share of the global market for hybrid electric vehicles. Toyota is now planning to fully enter the market for all-electric vehicles equipped with next-generation batteries. However, the rating agencies for sustainability give Toyota a poor impact score. We see it differently and believe Toyota is making an important contribution to the global transition to a sustainable vehicle fleet."
Rob: "As an investor or investor we record various metrics in a score. The investment industry is not ready for this yet, but it will get there."Triodos IM is a pioneer in this area and has defined seven transition themes that align with the United Nations Sustainable Development Goals (SDGs). A benchmark for all Triodos Impact Equity and Bond funds is that companies must make a positive contribution to at least one of the following transition issues:
- Sustainable food and agriculture,
- Sustainable mobility and infrastructure,
- sustainable resources,
- Circular Economy,
- Prosperity and human health,
- Innovation for sustainability
- social inclusion and empowerment.
"By also assessing whether companies meet our minimum standards, we can ensure that all forms of harmful activity are excluded," says Rob.
Portfolio composition and returns
Blended funds are not investing in oil and have limited positions in banks and insurance companies. "We avoid oil because we exclude fossil fuels, and banks and insurance companies because they generally don't contribute much to our transformative issues and often even finance activities that are completely counter to them," says Rob.
In 2020, that worked out well for fund performance because those sectors were hit hard. The Triodos Impact Mixed Fund (neutral) achieved an annual return of 5%. "It's a little less than the benchmark, but our portfolio also has significantly less risk than the index, especially in the bond segment," Rob comments. "Our goal is to outperform the benchmark over the long term. This means that in some years we will do a little better and in other years we will lag a little behind."
The three commingled funds have an underweight position in equities. In the U.S., interest rates are rising due to higher inflation expectations and increased demand for liquidity in the capital markets. Rob says this is a risk for bonds, but also for stocks. "Price-to-earnings ratios have risen sharply, especially for U.S. growth stocks. The market seems to have started to overvalue things, and this is a risk for the stock market as a whole. Because when interest rates rise, the current value of future returns falls."
Van Boeijen is less concerned about the impact of a rapid rise in interest rates on the European bond portfolio. "We only invest in bonds denominated in euros, and economically the eurozone really seems to be a different story. The European Central Bank has indicated that it will keep interest rates low. And their bond-buying policy is not likely to change much in the near future either. We also believe economic growth forecasts in Europe may be a bit too optimistic."