Before joining Triodos, Van Boeijen spent many years working for a traditional asset manager. “When talking to clients, I was getting more and more questions about what exactly they were investing in. They did want to realise a positive return, but only by investing in something that did not go against their principles. At Triodos that is our core responsibility. We apply that conviction to all our products.”
But according to Van Boeijen striking the right balance between risk and return is also essential. This effectively characterises the three Triodos mixed funds that he manages: investors realise a reasonable return whilst limiting the risk by investing in a mix of worldwide equities and Eurobonds. “In addition, we take a thorough look at what we would be investing in and at the sustainable impact of that investment.”
Advantages of a mix fund
Triodos offers a choice of three mixed funds. The neutral mix fund, with a 50/50 weight for equities and bonds, achieved an average annual return of more than 4% over the past five years (as at 31 March 2021). Since 2019 risk averse investors can also opt for a more defensive variety (75% bonds and 25% equities), while investors who are willing to take more risk can choose a more offensive portfolio (75% equities and 25% bonds).
Mixed funds are a ‘convenience product’, says Van Boeijen. The funds give investors access to a single comprehensive portfolio that matches their risk profile, all wrapped up in one product. A useful feature of the funds is that the allocation must be maintained. This means that when equity prices go down, the manager must add to his positions and that following price rises, he will take profit on some of his holdings. “Many private investors actually tend to buy equities after they have seen a sharp price rise and sell them after they have fallen”, says Van Boeijen. By using a mixed fund, this pitfall for investors can be avoided.
Van Boeijen may, within a certain margin, diverge from the strategic asset allocation for the three funds if market developments warrant this.
Strict sustainability screening
The mixed funds comply with strict sustainability criteria. “We carry out a detailed screening of every investment. Every holding has a strong impact story and contributes to the transition to a sustainable economy. This appeals to more and more investors” says Van Boeijen.
Measuring impact can be a challenge. “Some variables are measurable - such as CO2 emissions - but other forms of impact are much harder to quantify. We own shares in Adidas. How do you measure the effect that wearing Adidas trainers while you are working out has on your health?”
Another example is Japanese car manufacturer Toyota. “As an early pioneer Toyota has a market share of 60% in the global market for hybrid electric vehicles. Toyota is now planning a full scale entry into the fully electric vehicle market equipped with next generation solid state batteries. However, sustainability rating agencies give Toyota a poor impact score. We take a different view and believe that Toyota makes a significant contribution to the global transition to a sustainable vehicle fleet.”
Van Boeijen: “So, as an investor you need to capture different metrics in a score. The investment industry is not quite ready for this yet, but it will get there.” Triodos is a pioneer in this area, having defined seven transition themes that are aligned with the United Nations’ Sustainable Development Goals (SDGs). A yardstick for all Triodos Impact Equity and Bond funds is that companies must make a positive contribution to at least one of the following transition themes: sustainable food and agriculture, sustainable mobility and infrastructure, sustainable resources, circular economy, prosperous and healthy people, innovation for sustainability and social inclusion and empowerment. By also assessing whether companies meet our minimum standards, we can ensure that all forms of harmful activities are excluded.
Portfolio composition and return
The mixed funds do not invest in oil and have only limited positions in banks and insurance companies. “We avoid oil because of our exclusion of fossil fuels and banks and insurance companies because they usually do not make a big enough contribution to our transition themes and often even fund activities that are completely at odds with them”, says Van Boeijen.
In 2020 that worked out well for the fund's performance, because these sectors were hit hard. Triodos Impact Mixed Fund (neutral) achieved an annual return of 5%. “This is a fraction less than the benchmark, but our portfolio also has a considerably smaller risk exposure than the index, particularly in the bond segment”, comments van Boeijen. “Our objective is to outperform the benchmark in the long run. That means that in some years we will do a little better and in other years we will lag a little behind.”
The three mixed funds have an underweight position in equities. In the US, interest rates are rising due to higher inflation expectations and the increased demand for liquidities on the capital markets. According to Van Boeijen that is a risk for bonds, but also for equities. “Price-earnings ratios have risen sharply, especially for US growth stocks. The market appears to have started to blow things out of proportion and that is a risk for the equity market as a whole. Because when interest rates go up, the current value of future earnings goes down.”
Van Boeijen is less concerned about the impact of a rapid increase in interest rates on the European bond portfolio. “We only invest in bonds that are denominated euros and economically the Eurozone really appears to be a different story. The European Central Bank has indicated that it will keep interest rates low. And its bond purchase policy, too, is unlikely to see major changes in the near future. We also believe that the projections for economic growth in Europe may be a little too optimistic.”
Explore the fund's impact report to find out more about how to make impact by investing in listed equity. The report presents our 2020 results in a context of numbers and stories and showcases our mission to make money work for positive change.