It is no secret that we are facing a tough winter. Just how tough, however, is anyone’s guess. “There are some massive geopolitical and macroeconomic headwinds,” says Ketan Patel, fund manager at EdenTree Investment Management.
“The conflict in Ukraine is not going away anytime soon; there are emerging tensions in Taiwan; and the cost-of-living crisis, inflation and interest rate rises, as well as the lingering effects of the pandemic. There are some big issues.”
So what does this mean for charity investors? Patel continues: “The last two or three years have been difficult as there has been a lot of volatility, which can be good, but it can also be challenging. Charities have to think about how to preserve capital and receive a growing income stream because they need those cashflows to achieve their mission. For me, it’s about finding an asset manager that understands your specific needs.”
Global equities
When there is such volatility, charity clients need to think about the bigger picture. “You need to beat inflation, so you’re going to have to move into equities and global equities in particular, to achieve not only income growth, but also capital growth,” says Patel.
“You also get diversification through investing in the global markets, as the UK market has huge concentration risk in terms of income. We run a global equity income fund for charities that has 60 companies in a wide variety of sectors invested around the world, which provides a resilient and diversified portfolio. I believe that is the only way you can get through this very difficult patch.”
Although the short-to-medium term is hard to predict, to some extent this strategy provides a level of future proofing. “There are a lot of moving parts when you look at how the next year will unfold. This brings challenges and opportunities as investors. I think inflationary pressures will ease but there is always the spectre of a resurgence in Covid, the energy crisis and how the war in Ukraine will evolve,” says Patel.
“As a long-term investor, this provides opportunities for picking up some quality companies that are being sold off amid short-term thinking. If you are looking at income, there are some nice pockets in the market, particularly in insurance, industrials and health care – they are longer duration and they have pricing power which means inflation is less of an issue.”
Future strategies
Patel says that overall he is optimistic about the future. “The only certain thing is change. We survived the first pandemic when the markets were way off kilter and have bounced back. This shows that if you invest in a quality portfolio of diversified equities which are generating income, the power of compounding will come through.”
The fund manager sees opportunity in a few key areas. “I think the big opportunity is in renewable energy,” he says. “We are one of the leaders when it comes to renewable energy investment trusts that are listed on the London Stock Exchange. We recently launched a Green Infrastructure Fund so for the first time clients can get the benefit of that within the environment, social and governance (ESG) wrapper.”
Patel says that investing in renewables is not only the right thing to do, but it also offers solid returns. “You don’t have to invest in BP or Shell or mining because that is the easy thing to do to get a return; the renewables are yielding 6%. So from a charity perspective, it is a sector where they should be allocating funds.”
According to Patel, the two key elements to keep in mind as a long-term investor looking to the future are discipline and focus. “These will always get you through,” he says.
“As investors we have no influence on geopolitical or macroeconomic factors, so focus on the businesses that you like and invest in them over a long period of time. In the long-term, global equities will bring about superior risk-adjusted return. You don’t want to put capital into high-risk equities and just get lucky for one or two years. If you have a resilient portfolio, you are protected in terms of capital during bad spells and you are still earning and growing income.
“It is a difficult market and it’s a balance of not being too optimistic while being pragmatic – be patient and think long-term, and of course partnering with a fund manager that truly understands your charities long-term needs.”
What we do
EdenTree is a pioneer in responsible and sustainable investing, having launched the Amity UK Fund as one of the first ethical equity funds in the UK in March 1988.
We believe that the companies still making a return tomorrow will be the ones acting responsibly today. That’s why our Amity approach to responsible and sustainable investing fully integrates environmental, social and corporate governance factors across every part of our investment process.
EdenTree Investment Management Limited (EdenTree) Reg. No. 2519319.
EdenTree is authorised and regulated by the Financial Conduct Authority and is a member of the Investment Association.
FAST FACTS*
- 30-year track record
- £3.8bn of assets under management
*Figures as at 30 September 2022
Ketan Patel Fund manager at EdenTree Investment Management
Related articles
