Fund/Portfolio Size: £163.12m

Total screened & themed / SRI assets: £28761.00

Total Responsible Ownership assets: £116188.00

Total assets under management: £268599.00

As at: 30/09/25

Contact: mark.ferguson@aegonam.com

Overview

Filters

Fund information

Policy

The fund’s investment approach seeks to identify the best bottom-up investment ideas available globally while focusing our exposure to companies that have strong sustainability characteristics, as defined by our detailed in-house sustainability analysis. In addition, there are a limited number of product-based exclusions, designed to prevent the fund from investing in companies that we believe have a materially harmful impact on environmental and/or social factors.

Step 1 – Product Exclusions

The fund applies a limited number of absolute exclusions as follows:

Adult entertainment

• Own an adult entertainment company or produce adult entertainment.

Animal welfare

• Engage in the production and sale of animal tested cosmetics.

Fossil fuels

• Engage in the extraction of oil, gas or coal.

Gambling

• Derive more than 10% of revenue from gambling.

Genetic modification

• Conduct genetic modification for agricultural purposes.

Human rights

• Fail to address serious allegations of violations of international standards on human rights including the use of child, forced or bonded labor.

Nuclear power

• Own a nuclear power facility.

Tobacco

• Derive more than 10% of revenue from tobacco.

Weapons

• Produce or sell civilian firearms and firms which manufacture or sell armaments, nuclear weapons or associated strategic products.

This typically results in around 15% of the MSCI ACWI universe being excluded. Due to the structural sustainability challenges facing the above industries, we expect the market capitalizations of these areas to decline over the long-term relative to sustainable products and services.

Step 2 – Sustainability analysis

The sustainability analysis carried out by the RI team assesses three dimensions:

• Sustainable product: The nature of the products and services that a company provides (what a company does)
• Sustainable practices: Its operational practices and standards (how it does it)
• Sustainable monitoring: Improvement over time (we track positive and negative sustainability changes).

We analyze every company on a stock-specific basis, looking at the absolute and relative nuances that apply to it in terms of product, practices, and improvement in the context of its region, sector, size and maturity and versus our own absolute standards. This analysis seeks to determine the key sustainability risks and opportunities for a company.

Our RI team refers to the Sustainable Accounting Standards Board’s (SASB) ‘Materiality Map’ as a starting point. Materiality is central to our process, as we strongly believe that sustainability analysis should be tailored to the specific context of an individual company, rather than using the same criteria for all. We believe the materiality map provides an effective way of highlighting the ESG factors that matter most to a company given the industry and the sector in which it operates, helping to focus our bottom-up sustainability research. Our experience is that this often leads to us focusing on different factors when compared to third-party ESG ratings and reaching contrasting conclusions.

The RI team’s sustainability analysis will gather and analyze qualitative and quantitative information on these material factors in the context of the ‘Three Dimensions’ framework discussed above to form a conclusion and a sustainability rating for a company. As a result of this analysis, companies are classified into three categories:

• Leaders: Companies that meet a large amount of our absolute sustainability criteria and are demonstrably leaders in their sub-sector.
• Improvers: Companies where sustainability issues have been identified but where the company is showing clear evidence of taking steps to improve its sustainability performance,
• Laggards: Companies that are either excluded due to a combination of poor product exposure (e.g. tobacco or defense manufacturers), poor sustainability disclosure and performance and/or with little evidence of a desire to improve.

Only companies designated as sustainability Leaders or Improvers are suitable for inclusion in the portfolio. The rationale for investing in both sustainability Leaders and Improvers is that empirical evidence shows that identifying and investing in sustainability improvers is one of the most effective ways of generating alpha by incorporating sustainability data into the investment process.

This process is dynamic. It does not stop once we decide to invest in a company. The sustainability analysis for every holding in the portfolio is updated at least annually, or more regularly if events occur that we think could impact the conclusions of the most recent research. During each update, the RI team can change the categorization of a company and should their analysis result in a downgrade to a Laggard, then the stock becomes uninvestible and must be sold from the portfolio as soon as is reasonably practicable. This independent oversight of the portfolio is important for the integrity of the process.

It is important to note that after applying the product exclusions and conducting sustainability analysis the resulting investment universe is still very large and provides ample investment opportunities to build a diversified portfolio of 35-45 stocks.

We recognize that within sustainability considerations, there are always debates, grey areas and nuances and this is a key reason why we analyze stocks from the bottom up.

In addition to the categorization of leader, improver or laggard outlined above, each stock is assigned to one of our seven sustainability pillars based on our view of the main sustainability issue they are trying to address. There is no set range for weightings to specific pillars – it is simply an outcome of bottom-up stock selection.

Process

Our investment process provides an effective and disciplined approach to screening, analysis and portfolio construction. The process focuses on identifying profitable investment ideas and provides a forum for constructive engagement across the equity team.

At a very broad level, our investment process can be thought of as consisting of three key stages: idea generation, bottom-up analysis and portfolio construction. We have a very clear philosophical idea of the types of companies we are looking for which means the size of the universe we are realistically going to find ideas in is manageable.

Investment universe

As detailed in our ESG perspective, we apply some broad filters to derive an initial investment universe and then apply our sustainability exclusions. It is from this opportunity set that we search for the best sustainable growth ideas. We are guided by our philosophy in this search and use diverse sources of idea generation to ensure a consistent flow of stocks for consideration by the team.

Bottom-up analysis – Fundamental investment analysis combined with sustainability analysis

We emphasize stock selection and idea generation rather than blanket research coverage. We evaluate stocks using both our FVT analysis framework and in-depth sustainability analysis from our specialist RI team to reduce the universe to the specific types of opportunities which meet our investment criteria.

Investment Analysis

We use a common language and framework across our Equities team to analyse the most promising companies: Aegon AM’s Fundamentals, Valuations and Technicals (FVT).

The key thing we look for across the FVT process are indications of underestimated change or persistency. FVT encompasses the three aspects of our detailed bottom-up analysis: fundamentals, valuation and technicals. While we dedicate the majority of our time to fundamental research, the exact proportion of each aspect of the analysis is fluid and varies on a case-by-case basis.

Sustainability analysis

This two-way interaction between the fund management team and RI team enables us to build a more holistic view of each company and discover attractive long-term growth opportunities by looking through an ESG lens. This is a radically different approach to our competitors. The final decision on a stock’s sustainability category rests solely with the RI team, who have the power to veto any investment idea.

Focus list

Ideas that we have carried out research on then comprise our focus list. Some of the stocks on this list will have been fully analyzed, having been through the full FVT and RI analysis process. They may be on the list but not in the portfolio at present because we like the fundamental story but think the valuation is too rich, or because we already have several stocks in a similar industry in the portfolio. In contrast, other stocks on the focus list may have only had high level initial research carried out on them. This may be because we think the company has potential but need to see further proof points of commercial success before we consider the idea fully, for example.

Portfolio construction

Our final stage is using the output of this analysis to construct an optimal portfolio of around 40 high-conviction stocks from the focus list. We seek to keep stock-specific risk high, meaning our ability as stock pickers is what drives our portfolio. Final decision-making responsibility for portfolio construction lies with the portfolio managers.

Research and ESG data

While our own research drives our investment process, we draw upon external research to help form our views. All portfolio managers have access to our primary information systems, Bloomberg, Reuters and FactSet, which provide us with real-time information on stocks, markets, indices, news, derivatives, economics, bonds, and currencies. We also have extensive access to the research departments of numerous major investment banks, stockbrokers, and independent sell-side houses.

To supplement our own research, we make use of a range of external sources of ESG data, including third-party ESG ratings, company and sector reports and regional reports. Although, as mentioned earlier, these are only used as inputs into the process and our conclusions are always based on detailed internally generated analysis.

The information stream generated from these sources is shared across the team on a timely basis. We attach more importance to meeting companies, as this provides valuable insights to company strategy and allows us to identify change factors that will drive the share price.

We will not take an investment decision or purchase a stock without completing our own investment and sustainability research.

Resources, Affiliations & Corporate Strategies

Dialshifter

This fund is helping to ‘shift the dial from brown to green’ by…

Aegon AM apply strict screening criteria to our ethical and sustainable range, avoiding companies and sectors which have a detrimental effect on the environment, such as:

• environmentally unsound activities – specifically PVC, Ozone Depleting Chemicals and hazardous pesticides.
• those convicted of serious pollution offences or breach internationally recognised conventions on biodiversity.
• energy intensive industries not tackling climate change and hazardous chemicals issues.
• coal mining/processing.
• oil and gas exploration/production.

Excluding harmful companies with large carbon footprints delivers investments with lower carbon intensity and green energy transition themes.

Our approach results in a low carbon portfolio giving exposure to positive climate change solutions.

Literature

• Fund overview & literature (including factsheet)
• Responsible Investing
• Literature

Last amended: 02/10/23 03:48