Rathbone Unit Trust Management head of fixed income Bryn Jones on looking out for future generations
Many investors used to shy away from ethical funds because there was the perceived notion that returns would not have been as high as their non-ethical counterpart funds.
However, Bryn Jones’ £1.2bn Rathbone Ethical Bond fund has seen returns of 35.5 per cent over the past five years, according to FE data. For comparison, the Sterling Corporate Bond sector in which the fund sits saw an average 25.1 per cent growth rate over five years.
Ahead of Good Money Week, ethical investing is hot on many agendas. So what does it take to be an ethical fund manager today?
About the manager
Before entering the world of fixed income, Jones played football to “a high standard”, something that has stuck with him in his current role.
“Football is important,” he says. “I’m a team player and I like having people around me. It’s all about teamwork and nurturing people.”
His team currently consists of five people (which includes two analysts) and he says every member is an “integral” part of it. While they do not entirely rely on their own research, they look at anything from politics to macroeconomic information, and geography and environmental data is important.
Jones began his career at companies like Coutts, Robert Fleming & Co and, prior to Rathbones, Merrill Lynch. Now with 15 years under his belt at Rathbones, he has 21 years’ experience in the fixed income space. He says:“I did geography at the University of Birmingham which I think gave me a good guide of why people do things.”
Like many graduates, he had no idea of what he wanted to do when he finished university but soon found himself in the finance world: “My brother was on the futures exchange so I learned a bit from him. But when I got my job at Merrill Lynch I knuckled down and really found it interesting.”
Rathbones has been ahead of the curve alongside a few other fund managers in launching an ethical mandate many years ago. The Ethical Bond fund launched two years prior to Jones’ arrival at the firm: “Not many people were doing it when I started but now it seems to be a real buzz thing. Everyone seems to want to do sustainability or ethical investing. There has been a change with millennials and Generation Z, compared with the baby-boomers and Generation X.”
But he thinks it is less to do with people making themselves feel better and more that they are starting to realise that we need to make a change as a society. He believes society and governments have been “poorly managed” and for future generations ethical investing will be increasingly important.
He says: “We are going to have to be more environmentally and socially aware. There will be more of us on Earth, so we have to protect each other more closely. It’s not just about making ourselves feel better; it’s about future generations.”
The past few years have seen a substantial increase in flows into the fund due to the demand for ethical investments. “It is partly linked to performance,” he says. “When you have a level of performance it just takes the money, but we have noticed pension funds which used to screen out ethical funds because they thought they’d lose money are now screening them in and they have to have at least one ethical fund in there to please their investors or trustees. There seems to be a shift in philosophy.”
The fund works in a similar fashion to many ethical funds – starting with a negative screen. This covers anything from armaments or carbon-intensive industries to car manufacturers and tobacco. Areas such as animal testing are negative screens, which will subsequently rule out pharmaceutical companies.
Once stocks have been screened for negatives, they must then have something from the positive list, which can include environmental practices and positive impacts on society such as job creation.
“We are conscious of [companies] who abide by United Nations rules, so anything that comes up on the UN register we won’t invest in,” he adds.
The fund is not benchmarked, so many investments are outside any index, which Jones says can be positive because if benchmarked funds are not buying them the yield will be at a premium.
He says many investors used to believe they would have to compromise on performance to invest in ethical funds, but his fund and peers have proved this is no longer the case: “Long-term investing is about protecting investors’ capital. If you have a business that is unethical then you’re going to destroy capital which is not good investment practice.
“So having a business that employs ethical and sustainability [practices] will continue to generate long-term good performance.”