How responsible are the UK’s largest investment funds?

Funds grow in value as a result of their popularity, and longevity (no UK-based fund with more than £10 billion under management was launched less than 10 years ago). The size of these funds can be enormous, with the largest fund in the UK, Fundsmith Equity, having assets of around £29 billion at the end of 2021.

The managers of these funds can have a huge influence, as a result of their power as major shareholders, over the companies in which they invest. This week, the manager of Fundsmith Equity was reported as saying that Unilever had “lost the plot” by displaying sustainability credentials at the expense of running the business. A fund manager’s influence in respect of responsible investing can be negative as well as positive.

So, I’ve been looking at what sort of investments you might find in the UK’s largest investment funds. I didn’t include ‘index-tracking’ funds in my research; whilst they may be amongst the UK’s largest funds, they should just hold the same stocks as the index, and the manager can’t exclude companies they don’t like on an ethical basis.

The five largest investment funds in the UK, on 13th January 2022, are shown in the table below:

The values are estimated and will go down as well as up.

A quick review of the funds reveals a large holding in a tobacco company in Fundsmith Equity, whilst Baillie Gifford is fond of mining. Both have significant exposure to drinks company, Diageo. Fisher Investments’ LF Purisma fund is coy about its holdings, but a review of its annual report shows significant exposure to oil companies and miners.

It is refreshing to see that two of the largest funds – Royal London and Stewart Investors – include responsible investment into their processes.

Whilst it is good to see that the exposure to “sin stocks” is not substantial in any of these funds, they are not suitable for investors looking for a responsible approach to stock selection (with the exception of the Royal London and Stewart Investors funds). At any time, any of these funds could decide to increase their weighting to tobacco, armaments, gambling or fossil fuels.

I also looked at funds in the UK All Companies sector, which mostly invest in the UK – here the largest fund, Lindsell Train UK Equity, displays a fondness for alcohol, including Diageo, Remy Cointreau, Heineken and Young’s Brewery amongst its largest holdings, whilst Liontrust Special Situations is keen on fossil fuels.

It was a pleasant surprise to find that these very large funds were not heavily weighted towards the sin stocks; but, at the same time, they could do better. Ultimately, they will only change their approach if investors vote with their feet and move their money to responsibly managed funds.

Oliver Wise

This guide is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
The value of investments may go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance. 

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