Sustainable, Responsible &/or ESG Policy:
Hamish Chamberlayne, CFA is the lead portfolio manager of the Fund and is supported by co-managers Andrew Jones and Philip Payne, CFA. The Fund consists of three sleeves, global ex UK equities managed by Hamish, UK equities managed by Andrew and a fixed income sleeve managed by Philip.
The portfolio management team works closely with the broader Global Sustainable Equity Team and with the firm’s ESG Investment Team, specifically in relation to the analysis of material environmental, social and governance (ESG) issues and company engagement. The ESG Investment Team is an in-house specialised group focused on ESG data analysis and research, governance, ESG company and thematic engagement, proxy voting and advisory services that serves as a resource for all our investment desks. The team’s mission is to promote ESG integration across the business. They play a leading role internally in working with investment desks to enhance their ESG integration processes and externally leading our active participation in numerous ESG initiatives. The ESG Team comprises three sub-teams: Governance and Stewardship, ESG Investment Research and ESG Strategy and Development.
Key Differentiators
Diversified Multi-asset Portfolio with an Attractive Risk-Return Profile and Clear Sustainability Criteria
The Fund offers clients exposure to an attractive blend of equities and bonds that is diversified in terms of both themes and style. The result is a Fund that can outperform in a variety of market conditions and is an attractive option for clients not wanting full exposure to equity market volatility.
Long History of Sustainable Investing
We have a long and successful track record in the consistent application of our sustainability framework – our first sustainable strategy was launched in 1991 and Hamish Chamberlayne has been managing this strategy since 2013. The Fund itself is 20 years old with a strong track record of producing attractive risk adjusted returns for clients.
Do No Harm, Avoidance Criteria
The Fund has strict avoidance criteria that have been applied since inception that help the Fund avoid companies that have a negative impact on the development of a sustainable global economy. We believe these types of business are at a higher risk from government regulation or disruption.
The Fund is split broadly 50% global ex-UK, 25% UK equities, 20-25% global fixed income and 3-5% cash. The global ex-UK and UK portions of the Fund follow the investment processes of the Janus Henderson Global Sustainable Equity Fund and the Janus Henderson UK Responsible Income Fund respectively.
The Fund adheres to ethical criteria, avoiding companies that have products, services or activities with a negative impact on people, the environment or animals. Janus Henderson has partnered with industry leading ESG research company, Vigeo EIRIS, to provide ethical screening of potential investments.
Although all sub-portfolios adhere to the same investment philosophy, each sub-portfolio has a somewhat differentiated investment process and portfolio construction methodology. We detail each below.
Global ex-UK equities investment process:
The Global ex-UK equities strategy targets companies that are growing sustainably. It aims to achieve above median long-term performance versus unrestricted global equity peers. The strategy utilises both positive and negative (exclusion) selection criteria. Sustainability runs throughout the investment process. In researching a stock and building an investment case, The Global Sustainable Equity (GSE) looks for evidence of sustainability in every aspect of a company’s business, not just in the types of products and services offered, but also in its growth prospects, strategy, capital allocation, cash flows and corporate governance.
UK equities investment process:
The investment approach used in the Fund is first and foremost one of bottom-up stock selection. This is based on fundamental and qualitative analysis of companies and is underpinned by a strong valuation discipline.
The primary aim is to outperform the FTSE All Share Index in a variety of market conditions, regardless of style trends in the market. To achieve this, the Fund manager uses a pragmatic and flexible approach to exploit inefficiencies across the UK market.
Ethical screening
Once an idea has been generated, it is screened for ethical considerations. The Fund adheres to ethical criteria avoiding companies that have products, services or activities which have a negative impact on people, the environment and animals.
- Impact on people
- Alcohol, armaments, gambling, irresponsible marketing, oppressive regimes, pornography and tobacco;
- Impact on the environment
- Chemicals, greenhouse gases, mining, nuclear power, ozone layer, road building, tropical hardwood and water pollution; and
- Impact on animals
- Fur and genetic engineering
Fixed income investment process
Specifically in credit management, our approach is characterised by seeking to exploit opportunities at three levels within a corporate bond portfolio:
- Asset allocation – we are dynamic in allocating between credit, government bonds and cash. There will be periods when the expected compensation offered by a risky asset class is not sufficient to compensate for that risk;
- Sector selection – high conviction top-down sector selection by the Fund manager reflecting our macroeconomic views and input from the credit analyst team on their sector and its prospects;
- Security selection – bottom-up, company by company fundamental analysis performed by the credit analyst team, to identify the best performers in each sector and importantly to avoid the ones that fail/ perform very poorly.
Our investment style can be described as one of fundamental bottom-up analysis in combination with top-down macro overlay. The expected outperformance of the Fixed Income portfolio is driven by our sector and security selection within core credit markets, not through asset allocation to off-benchmark markets such as emerging market sovereign debt and high yield.
ESG considerations
In addition to these scores (and the EIRIS screen), the fixed income credit analysts will also incorporate ESG factors within the credit appraisal process to identify any ESG risk factors that are material to the credit profile of the issuing company and to determine if bondholders are adequately compensated for these risks.
The Fund invests in companies that are responsibly run, give due consideration to environmental, social and governance issues. The fund will avoid investing in companies that the Investment Manager considers to potentially have a negative impact on the development of a sustainable global economy.
The investment manager looks to construct a differentiated and well diversified global portfolio of company shares and fixed income securities (bonds), based on the belief that superior returns can be generated by companies that are providing solutions to environmental and social challenges. These companies should have attractive financial attributes such as persistent revenue growth and durable cash flows, as well as exhibiting strong management of environmental, social and corporate governance risks. Companies will typically be strategically aligned with themes such as climate change, resource constraints, growing populations, and ageing populations. The Fund avoids investing in fossil fuels and companies that stand to be disrupted by the transition to a low-carbon economy.
As mentioned earlier, the Fund is actively managed with reference to the IA Mixed Investment 40–85% Shares sector average.
Sustainable, Responsible &/or ESG Process:
Investment Approach
We believe there are a myriad of investment opportunities arising from the migration towards a more sustainable global economy, and that the best investment returns will be generated by companies that are on the right side of these. Looking for these long-term compounding characteristics and staying focused on long-term value and durable cash flows can generate attractive investment returns. We also believe there are substantial risks to companies and shareholder returns that come from factors such as asset obsolescence, regulatory risk, weak corporate cultures, or damaged franchises that are on the wrong side of disruption. While these risks can appear immaterial in the short term, they can compound over time and dramatically hurt company fundamentals.
The Global Responsible Managed Fund offers clients exposure to an attractive blend of equities and bonds that is diversified in terms of both themes and style. The Global ex UK sleeve provides investors with exposure to the global growth characteristics of the Janus Henderson Global Sustainable Equity strategy. The UK equity sleeve meanwhile delivers an attractive dividend yield with a focus on free cashflow generation and valuation. Finally, exposure to fixed income helps dampen the Fund’s volatility. The result is a fund that can outperform in a variety of market conditions and offers clients compelling risk-return characteristics, an attractive option for those not wanting full exposure to equity market volatility.
Do No Harm, Avoidance Criteria
We seek to avoid those businesses involved in activities that are harmful to society or the environment. We believe these types of businesses are at higher risk from government regulation or disruption. Also referred to as ‘negative screening,’ ‘negative criteria’ or ‘exclusion criteria’, our clearly defined standards govern the companies we exclude from our investment universe.
The Fund avoids investing in businesses that have products or operations directly associated with:
- Environmental
- Fossil fuel extraction & refining
- Fossil fuel power generation
- Nuclear power
- Chemicals of concern
- Contentious industries
- Intensive farming & meat production
- Animal testing
- Fur
- Social
- Alcohol
- Armaments
- Gambling
- Pornography
- Tobacco
- Human rights
- Slavery
- Corruption & Bribery
All equity and corporate bond holdings are compliant with the UN Global Compact, whose Ten Principles cover human rights, the International Labour Organisation’s declaration on workers’ rights, corruption and environmental pollution[1]. Additional oversight is provided by Janus Henderson’s Ethical Oversight Committee, an independent committee comprising senior figures from across Janus Henderson, responsible for ensuring the strategy’s adherence to its exclusion criteria.
With regard the Fund’s bond exposure, sovereign bond holdings will exclude all countries apart from those issued by the G7.
*For a full list of avoidance criteria please refer to the Janus Henderson Global Responsible Managed Fund’s Investment Principles
Fundamental Research
Equities
The philosophy underpinning investment decision-making and portfolio construction is that compounding is more important than timing. The team takes a longer-term approach to company valuations and stays focused on the potential for long-term value creation rather than on shorter-term valuation metrics. The team is ultimately trying to identify businesses with long-term compounding characteristics, and with optionality upside, which are trading at discounts to their intrinsic value.
The team also believes there are substantial risks to companies and shareholder returns from factors such as asset obsolescence, regulatory risk, the loss of key talent arising from weak corporate culture, or the loss of customers given the perception that a company operates on the wrong side of ESG. The team believes that the market often fails to see both the long-term value being created by some companies and under-appreciates the long-term risks to others. They consider all these factors when thinking about a business’s fair value.
There is a specific focus to the financial analysis that the team do as they seek to establish the attractiveness of a company’s business model, and the resilience of its financial structure.
The analysis focuses on:
- The potential for multi-year revenue compounding
- A culture of innovation, that in turn drives that upside optionality
- Durable business models, as evidenced by a company’s history and competitive advantages
- Greater predictability of revenues, with an emphasis on the proportion of recurring revenue streams
- Consistency of margins and cash flows, with an emphasis on free cash flow generation and operating margins
- Strong balance sheets, with the focus on a company’s net debt leverage and its access to capital
- Free cash flow yield, dividend yield and dividend growth are also considered
- A wide range of valuation criteria are utilised depending on the sector and business model
Fixed Income
The fixed income component of the portfolio blends a top-down macro view with a bottom-up analysis driven fundamental view. The macro view is driven by the Fixed Income Global Credit team of which Philip Payne is a member. The team meet formally on a monthly basis to discuss their credit market views, providing a forum in which to formulate the team’s top-down market view. There are three principal pillars, across which, investment decisions are considered. These cover fundamentals (both the macro environment, as well as corporate health), market dynamics and valuations. The Team then assign scores to these factors on a scale of -3 (maximum downside) to +3 (maximum upside) across Global Investment Grade and Global High Yield, which ultimately influences the top-down asset allocation across the fixed income component of the portfolio and the level of credit risk exposure. Identifying turning points in the broader credit cycle and focusing on appropriate downside protection ahead of cyclical turns, is an important focus of this process.
Bottom-up credit selection is driven by the highest-conviction ideas from Janus Henderson’s credit analysts. All issuers are screened using Vigeo Eiris to exclude those that do not meet the ‘do no harm’ avoidance criteria and to ensure they fit within the ten environmental and social sustainable themes. The credit research process incorporates in-depth fundamental research combined with relative value capital structure and ESG analysis to formulate ideas. The collaboration between Philip and the credit analysts is integral to the research process and is key when implementing active portfolio exposures. The fixed income sleeve is constructed to contain return drivers such as risk-adjusted spread compression trades, event driven trades and new issuance.
Further information of third-party data and analytical tools used to support investment and screening process can be found on the Investment Principles document on www.janushenderson.com.
Active Portfolio Construction
Valuation Framework
We aim to invest in companies which we believe to have the ability to compound growth over a multi-year time horizon. Near term valuations are considered in the context of actively managing the portfolio and optimising position sizes but are never the sole reason for a full divestment. When considering divestment, we place greater emphasis on medium to longer term cash flows vs near term valuation metrics.
Portfolio Composition
Based on the research and analysis stage of the process, the team decides whether the stock should be included in the portfolio.
- Position sizing is a result of the following factors: predictability of revenue growth, cash flow, valuation, free cash flow yield, dividend yield, ESG risk, portfolio diversification and liquidity. The more attractive the combination of these factors, the larger the position.
Sell Discipline
Portfolio holdings may be sold for several reasons:
- Impairment of the long-term investment thesis – if there is a change, either at the regulatory, industry or company level, which undermines the ability of the company to grow over time.
- Breach of avoidance criteria – if the company, either as a result of an acquisition or internal business development, becomes involved in an activity that transgresses the avoidance criteria.
- Deteriorating or unresolved operational ESG issues – we seek to invest in companies which demonstrate high and improving standards in respect of the management of operational ESG factors because this underpins the ability of the company to grow over time.
- A new idea offers a more compelling risk/reward opportunity.
Risk Management
Portfolios are subject to independent reviews on an on-going basis, with regular management and internal monitoring controls implemented at various levels:
- Compliance with investment/trading restrictions are monitored by the compliance system, Charles River Development (CRD).
- Portfolio risk is independently monitored by the Investment Risk team, who aim to meet every portfolio manager at least once a quarter on a rolling basis.
- Portfolio performance and consistency is peer reviewed by senior personnel, including the Global Co-Heads of Equities. Performance and risk statistics are formally reviewed by the Board on a monthly basis.
The portfolio is subject to regular reviews of exposure to ESG risks as part of Janus Henderson’s formal risk oversight process. The team use data from Sustainalytics to flag exposure to controversies in five areas – Environment, Governance, Human Rights, Labour Rights, and Customers.
Engagement
Company engagement forms an important part of the investment process. We take an active approach to communicating our views to companies and seeking improvements in performance. We participate in various forms of engagement:
- Collaborative engagement: coming together with a group of other institutional investors to engage with companies on a range of ESG issues
- Continuous engagement: working with companies on ESG issues that have long-duration and do not result in immediate outcomes
- Collective engagement: bringing together ideas and resources from a diverse range of stakeholders from outside the organisation to engage with companies on key issues.
Fund policy on ESG integration, an overview on company engagement, voting, stewardship and how performance will be evaluated and monitored in relation to the fund’s investment approach can be found on the Investment Principles on www.janushenderson.com.
Asset Allocation
The Fund’s alpha generation is primarily generated by bottom-up stock and bond selection from the three underlying sleeves. However, the asset allocation between equities and fixed income is also reviewed at regular meetings in order to monitor the fund’s asset class exposure relative to the IA Mixed Investment 40-85% Shares sector peer group average. These meetings are held between the portfolio managers and chaired by Jane Shoemake, the Client Portfolio Manager for the Fund.
The Fund’s asset allocation is based on an assessment of the bottom-up opportunity set in each asset class alongside top-down macroeconomic analysis. The team utilise third-party macro research but also leverages the asset allocation expertise of the London based Multi-Asset team as well as the Balanced team located in Denver. These inputs all help inform the asset allocation discussion and determine the relative value of bonds in comparison to equities.
The team consider several top-down macro-economic leading indicators alongside bond market signals, including the shape of the yield curve, interest rate expectations, central bank monetary policy and any recent significant changes. Asset class valuations (both absolute and relative) are also considered with relative yield seen as a useful valuation indicator. The extent of bottom-up investment opportunities identified by the respective portfolio managers also feeds into the asset allocation decision making process. For the allocation between UK and International equities Hamish and Andy again consider both top down and bottom-up factors, including relative valuation levels, macro-economic data and investment opportunities at the stock level.
Asset Allocation constraints
Beyond the IA sector criteria, there are no minimum or maximum asset class weight constraints although the Fund will typically not have more than 10% of its AUM in cash. The portfolio will also generally be at least 60% invested in equities unless the manager identifies a material change in the risk/reward of equities vs fixed income securities which may prompt a temporary increase in the fixed income allocation.
Ultimate responsibility for the Fund’s asset allocation lies with the portfolio managers.
Cash
The IA Mixed Investment 40–85% Shares sector includes a weighting to cash and the Fund’s allocation to cash is considered as part of the Asset Allocation discussion. The cash weighting is generally less than 5% of the Fund’s assets.
[1] The UN Global Compact’s Ten Principles are derived from: the Universal Declaration of Human Rights, the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work, the Rio Declaration on Environment and Development, and the United Nations Convention Against Corruption. For further information please visit https://www.unglobalcompact.org/what-is-gc/mission/principles .
Resources, Affiliations & Corporate Strategies
The following investment individuals are dedicated to ESG at Janus Henderson:
- Paul LaCoursiere, CFA - Head of ESG Investments
- Adrienn Sarandi - Head of ESG Strategy and Development
- Amarachi Seery, CEnv, MIEncSci, PIEMA - Sustainability Analyst
- Antony Marsden - Head of Governance & Stewardship
- Aaron Scully, CFA - Portfolio Manager
- Artee Khiatani ^ - Credit Analyst – ESG
- Bhaskar Sastry, CFA - ESG Content Manager
- Blake Bennett, PhD - Analyst, Governance & Stewardship
- Charles Devereux, CFA - ESG Corporate Research Analyst
- Charlotte Nisbet - ESG Corporate Research Analyst
- Dan Raghoonundon - ESG Corporate Research Analyst, Lead
- Elizabeth Harrison ^ - Fixed Interest Analyst – ESG
- Hamish Chamberlayne, CFA - Head of Global Sustainable Equities | Portfolio Manager
? Harry Schmidt - Sustainability Analyst - Jesse Verheijen - ESG Data Analyst
- Jigar Pipalia - Portfolio Analyst
- Natasha Page - Director of Fixed Income ESG
- Olivia Gull - Analyst, Governance & Stewardship
- Olivia Jones - Junior ESG Research Analyst
- Olivia Vernall - Associate Analyst Research & ESG
- Kimberley Pavier ^ - Sustainability Analyst
- Ruchi Biyani - Analyst, Governance & Stewardship
- Xiaoyi Luo Tedjani, FRM - ESG Corporate Research Analyst
Note: This is an evolving group and will be built out with additional professionals.
^Some investment professionals listed above manage and have ESG coverage on specific investment desks, but ESG is not their sole focus
The ESG Investment Team, headed by Head of ESG Investments Paul LaCoursiere, is an in-house specialised group focused on ESG data analysis and research, governance, ESG company and thematic engagement, proxy voting and advisory services that serves as a resource for all our investment desks. The team’s mission is to promote ESG integration across the business. They play a leading role internally in working with investment desks to enhance their ESG integration processes and externally leading our active participation in numerous ESG initiatives. The three areas of this group are described below.
Governance & Stewardship
The Governance & Stewardship Team focuses on supporting investment teams on governance, proxy voting advisory, and ESG company and thematic engagement. The team’s mission is to promote ESG integration across the business. They play a leading role internally in working with investment teams to enhance their ESG integration processes and externally leading our active participation in numerous ESG initiatives.
ESG Investment Research
This is a new and developing team whose primary purpose will be to support a consistent methodology for evaluating ESG performance of issues across sectors and industries, with a focus on financial materiality. The team will be structured by relevant ESG risk differentiation (super-sector on the corporate side and a specialist focused on sovereign) with a natural overlay of ESG theme accountability. The team will collaborate with investment desks to produce a deep dive analysis of a company, industry or theme. The primary accountability for the team will be to publish a methodology for the portion of the opportunity set for which they are responsible and to periodically present thematic / industry / region level pieces, articulating how ESG issues impact a group of issuers and their relative ESG performance.
ESG Strategy & Development
As another new, specialist team, the ESG Strategy & Development group will consist of specialists focusing on data, content, product design and investment desk support with advisory services on ESG investing across all asset classes.
In addition to the above specialist investment teams, we also have dedicated ESG resources embedded on some investment desks.
We believe that strong governance is foundational to good business and all aspects of ESG. In 2021, we refined our ESG governance structure, forming a new ESG Oversight Committee that will be accountable for key strategic decisions with respect to ESG investment processes, implementation of regulatory changes, ESG data and product design. The group is led by the Global Head of ESG Investments and complements the ESG Program Steering Committee, that consists of the firm’s senior leadership, led by the Global Chief Investment Officer.
ESG considerations are a key component of the active investment processes employed by our investment teams. These teams operate and are structured in ways most suited to their respective asset classes. Aside from expectations outlined under our ESG Investment Principles, the precise approach to and depth of ESG integration is down to the discretion and judgement of our investment teams, who apply their differentiated perspectives, insight and experience to identify sustainable business practices that can generate long-term value for investors.
Janus Henderson’s investment teams manage portfolios that reflect different ESG factors. We also have strategies that have a unilateral focus on sustainability. On a corporate level, we support the investment teams in embedding ESG considerations in their work. This support includes centralised functions, such as data management, research, investment platforms, and risk management tools:
Internal Research Platform
Investment teams share relevant ESG research produced in-house by our analysts across a centralised research platform.
ESG Investment Team
The ESG Investment Team is an in-house specialised group focused on ESG data analysis and research, governance, ESG company and thematic engagement, proxy voting and advisory services that serves as a resource for all our investment desks. The team’s mission is to promote ESG integration across the business. They play a leading role internally in working with investment desks to enhance their ESG integration processes and externally leading our active participation in numerous ESG initiatives.
ESG Risk Reporting
ESG data is incorporated into our risk reporting tools, covering issues such as exposure to companies with low ESG ratings, controversies, weak corporate governance, and climate risk.
ESG Research, Data and Ratings
We subscribe to a broad range of external ESG information providers and make this information available directly to the investment teams.
Janus Henderson subscribes to a wide range of specialist ESG research providers and makes this information available directly to the investment teams. However, we do not base our investment decisions solely on third-party ESG data. Rather, we augment our proprietary ESG analysis and ESG ratings with data from third parties.
We use a wide range of specialist ESG research, data and tools from providers, including:
- Sustainalytics
- MSCI
- Vigeo EIRIS
- ISS Climate Impact
- Institutional Voting Information Service (IVIS)
- RepRisk
- ISS Quality Score
- ISS Proxy Voting Research
- FTSE Russell Beyond Ratings
- TPI, CDP, SASB, CBI, SBTi
- GRESB
- Other specialist broker research
Investment teams share relevant ESG research produced in-house by our analysts across a centralised research platform, eQuantum.
ESG Affiliations, Memberships, Initiatives and Certifications
In addition to being a founding signatory of the UNPRI, as part of our commitment to responsible investment, Janus Henderson is involved in a wide range of ESG related initiatives and working groups as a member, supporter or in an advisory capacity.
Our participation in industry working groups along with our sharing of insights and knowledge of ESG through our published materials reflects our firm as active proponents of sustainable finance. In 2021, we generated approximately 50 thought leadership and educational pieces on ESG topics. As part of our Knowledge Shared approach, we share the views of our investment teams as articles, videos and white papers on our website. We publicly support standard setters and industry groups listed above who work with governments to support greater sustainability within investments. Where possible, we contribute to ESG policy and regulatory discussions through our response to consultations.
For the full list of our ESG Affiliations, Memberships and Certification details please refer to the Affiliations section in our website (Impact report).
Dialshifter
Literature
<
