Ethical Bond Fund

Fund Objective

The Fund’s investment objective is to achieve a total return over the medium term (3-5 years) by investing at least 80% in sterling-denominated corporate bonds, which meet predetermined ethical criteria. The Fund's performance target is to outperform the Markit iBoxx Sterling Non-Gilt Overall All Maturity Index (the “Index”) over a rolling 5-year period. For further information on the Fund's index, please refer to the Prospectus, available via the fund information section of this website. The Fund is actively managed.

Fund manager

Eric Holt has extensive knowledge of UK investment grade and high yield corporate bonds, gained over a career spanning more than 30 years. He has overall responsibility for RLAM’s credit research process, as well as managing the Sterling Extra Yield Bond Fund and the Ethical Bond Fund. He joined RLAM in 1999 following Royal London’s acquisition of Refuge Assurance’s investment team, where he had worked for the previous 20 years. Eric is a graduate of Nottingham University with a degree in mathematics and is an associate of the Institute of Actuaries.

Investment approach

Central to the investment process used across our Fixed Interest Team is the belief that fixed interest markets offer inefficiencies that can be exploited. The Fund aims to achieve outperformance from multiple sources (e.g. asset allocation, stock selection, duration and yield curve management as well as off-benchmark investing).

RLAM has an experienced credit team which firmly believes in its core philosophy of favouring 'covenants, structure and security'. This means that we do not rely just on credit ratings; a key question for us is: “are we getting sufficient reward for the risk we are taking?”. In practice this means that credit bonds that are excluded from the credit benchmark (e.g. unrated bonds, smaller issue size bonds, sub-investment grade bonds and non-Sterling bonds) are held where valuations are believed to be attractive. This approach allows the team to focus on investing for the longer term.

The Fund adopts a broad policy of not investing in companies and organisations with significant trading interests (defined as a 10% revenue threshold) in the following sectors:

  • Alcohol – involvement in brewing, distillation or sale of alcoholic drinks
  • Armaments - manufacture of armaments or nuclear weapons or associated products
  • Gambling - investments in betting shops, casinos or amusement arcades
  • Tobacco - growing, processing or sale of tobacco products
  • Pornography - adult entertainment services
  • Environment - companies which have a high environmental impact and which have ‘no evidence’ of appropriate environmental management systems
  • Human rights - companies with a strategic presence operating in countries of concern and which have ‘no evidence’ of policies or systems to manage human rights risks
  • Animal testing - companies that test cosmetics, household products and other products (excluding medicines), on animals. Companies that provide animal testing services or test ingredients of these products will also be excluded.

As a consequence of the investment philosophy and the ethical constraints of the Fund, sector and stock positions will differ from its benchmark. Asset allocation, interest rate views and stock / sector selection will be the key risks within the Fund. Credit diversification is deemed an important means of reducing single name credit risk.

Product Risk Warning

Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. For funds that use derivatives, their use may be beneficial, however, they also involve specific risks. Derivatives may alter the economic exposure of a fund over time, causing it to deviate from the performance of the broader market. Sub-investment grade bonds have characteristics which may result in a higher probability of default than investment grade bonds and therefore a higher risk.