Square Mile has announced three change to sustainable and impact funds in its latest ratings round-up, affecting the Regnan Sustainable Water & Waste fund, the FP Wheb Sustainability Impact fund and the Federated Hermes Impact Opportunities fund.
Regnan Sustainable Water & Waste fund has been awarded Responsible A rating by Square Mile.
Research and ratings agency Square Mile has announced that the Regnan Sustainable Water & Waste fund has been awarded a Responsible A rating and also enters the Academy of Funds.
The fund is focused on investing in companies that bring solutions to global water and waste environmental challenges.
Square Mile’s analysts said that they believe it represents a ‘compelling proposition’ for the Academy and is ‘driven by a durable thematic tailwind, a stable investment process and highly experienced fund managers’.
The FP Wheb Sustainability Impact fund has retained its Responsible AA rating, despite changing its comparator benchmark from the MSCI World Index.
The change was due to the portfolio’s specialist sustainability characteristics which result in it having a materially different composition to this broad-based index.
However, there have been no changes to the fund’s management, and in its public materials, WHEB continues to offer comparison indices to provide context for returns, since investors may wish to see how the fund compares to an unconstrained index or against cash rates, Square Mile said.
Square Mile added that its analysts ‘are aware of the difficulties that a fund such as this can have when compared to broad market indices, particularly when market leadership is concentrated in stocks that it cannot or will not own and they respect and understand WHEB’s decision’.
Nonetheless, the analysts said they ‘still believe that is reasonable for investors to expect that the fund should compete against the broader market over the long-term. As a result, they have not changed their expected outcome of outperformance relative to the MSCI World Index on a rolling five-year basis’.
The Federated Hermes Impact Opportunities fund has lost its Responsible A rating, which Square Mile said, follows ‘a period of underperformance with the fund facing multiple headwinds due to its inherent impact biases’.
Although the fund has struggled to deliver its Square Mile Expected Outcome (outperforming the MSCI AC World IMI Index by 2%-3% p.a.), the analysts said they believe that ‘it is commendable that the fund managers remain true to the fund’s impact approach. Nonetheless, in an environment where positive investor sentiment and flows into the fund have dissipated, they do not see a catalyst that would provide renewed buoyancy to this proposition’.
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