2 sustainable fund ideas for the new tax year

Written by Lori Campbell on 9th Apr 2024

An Individual Savings Account (ISA) is a great way to invest and not have to pay tax on the gains made in any given year. Excitingly, it’s also possible for your ISA investments to match your hopes for the future of the planet.

However, with seemingly endless opportunities to invest your allowance, it can be hard to know which fund or funds to pick – especially when you add ethics into the mix.

Here, the experts at DIY investment platform Hargreaves Lansdown (HL) pick out two sustainable funds they like the look of for the new tax year.

Victoria Hasler, Head of Fund Research at HL, said: “At the start of a new tax year, many investors will be wondering if they can use their investments to make a difference this year. Perhaps you want to invest, but don’t like the idea of supporting some of the more controversial companies in the global stock markets, such as cigarette maker British American Tobacco or oil and gas giant Exxon Mobil. Or perhaps you are interested in supporting innovations that will really make a difference to our society or environment.

“If that’s you, then you’ll be pleased to hear that it’s possible to invest into both equities [shares in companies] and bonds [loans to a company or government] while not only avoiding some of the more controversial companies, but actively supporting ones that are trying to make the world a better place to live.

“And what’s more, it’s possible to do this through funds, which means that you can keep a good level of diversification in your portfolio. In the last few years, we have seen a record number of sustainable funds launching. Each offers something slightly different, as all fund managers will interpret sustainability through a different lens. Investors should therefore be careful to pick funds that match up to their ideas of sustainability.”

No need to sacrifice financial returns

Hasler said it isn’t a case of having to sacrifice returns if you want to invest sustainably.

She said: “There is a debate about whether or not you need to accept lower returns in order to invest sustainably. We believe this does not have to be the case and have identified a number of funds which we think have the potential to outperform their benchmarks over time.

“This said, funds which do not invest in certain parts of the market – for example oil and gas – are unlikely to do well when that part of the market strongly outperforms. There may be shorter periods of time when the returns on sustainable funds differ quite substantially from those of the broader market and sustainable investors will need some patience.”

2 sustainable fund ideas

NinetyOne UK Sustainable Equity

The NinetyOne UK Sustainable Equity fund is run by an experienced manager, Matt Evans, who is passionate about sustainable investing. The fund aims to provide growth in capital and income over the long term, while investing in companies it believes are making a positive impact on society or the environment. While the approach is centred on positive inclusion of sustainable companies, the fund does exclude certain sectors which the manager believes to be at odds with the aim of investing for a better world. These include tobacco, fossil fuels and defence companies.

The fund’s positive impact approach makes it different to other funds in the IA UK All Companies sector, and to other responsible UK equity funds. The process which the manager uses often tends to lead him to smaller and more innovative companies.


Liontrust Sustainable Future Corporate Bond

The Liontrust Sustainable Future team are innovators in this space and have been investing sustainably for many years. The fund uses a hybrid approach of avoiding issuers whose activities they deem to be harmful at the same time as investing in bonds issued by companies that produce products or operate services which are positive for society or the environment. As well as the usual culprits, Liontrust’s more extensive criteria also excludes alcohol producers, companies involved in the deforestation of primary or virgin forest, intensive meat and fish farmers and companies that test products on animals, among others.

The fund’s exclusions, and the focus on investing in bonds issued by companies that they think can have a positive impact in the world, mean we expect the fund to perform differently to its benchmark and peers at times. That said, companies that can make a positive difference are often those best positioned for the future, and over longer time periods we think the fund has the potential to perform well.”

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