Page 1

Q1 2021

In this report... Market commentary

SUSTAINABLE FUNDS QUARTERLY

Thematic review Stewardship Portfolio Funds update Fund commentary

C A S T L E F I E L D


S u s t a i n a b le Fu nds Qua rte rly

MARKET COMMENTARY

In the first quarter of 2021, global investment markets were still dominated by the big story of 2020, that of the Coronavirus pandemic and the societal lockdowns initiated across the world to control and ideally reduce the spread of the disease which, according to the World Health Organisation, was a contributing factor in more than 2.8 million deaths globally, as at 6th April 2021.1 The pandemic and the rush for vaccinations

securing sufficient of its own supply. As Britain

In Britain, we are fortunate to have a world-leading vaccination programme, with over 31m first doses and 5m second doses administered as at 5th April 2021.2

slowly but surely emerges from lockdowns, citizens of countries like France and Spain remain plagued by restrictions. The US had a tough time with Covid-19 in Q4 last year but has made excellent progress so far this year with their inoculation programmes, although the details vary by state. Conversely, parts of India and large swathes of South America still seem firmly in the grip of the pandemic. Japan, which

have raised the political temperature across

hosts the delayed summer Olympic Games

the world. In Britain, we are fortunate to have

a mess of its vaccination roll-out, not helped by

in less than four months, is wrestling with a

a world-leading vaccination programme, with

the scepticism about the Oxford/Astra Zeneca

possible fourth wave.3 Predictably, Russia and

over 31m first doses and 5m second doses

jab expressed by the leaders of France and

China, neither of whom likes to waste a crisis,

administered as at 5th April 20212 - covering

Germany to their already sceptical compatriots,

have sought to bolster their influence with

over half the total population. So far, the

nor by the altruism shown in exporting vaccines

some vaccine diplomacy in targeted countries

European Union seems to have made a bit of

around the world (including the UK) before

despite their own issues at home.

1. https://covid19.who.int/ 2. https://coronavirus.data.gov.uk/details/vaccinations 3. https://www.reuters.com/article/health-coronavirus-japan-strain/japan-fears-covid-19-variants-are-behind-possible-fourth-wave-idUSL4N2LY0L6

Index Returns

Global Equities

US Equities

UK Equities

European Equities

APAC Equities

Japanese Equities

EM

-10.00

January

-1.75

-4.64

-6.10

-2.72

-5.00

-2.46

0.00

February

March

Q1 Overall

Source: Financial Express 2

Past performance is not necessarily an indicator of future performance. Returns are not guaranteed. With investment your capital is at risk.

13.74

11.78

10.24

11.10

11.18

10.28

3.69

4.26 1.73

3.27

2.46

1.60

2.23

2.40

2.35

5.00

7.12

8.15

11.84

14.58

12.82

11.50

10.00

11.58

15.00

15.41

20.00


M ARKET COMMENTA RY 

  27 Ap r 2021

ASSET CLASS PERFORMANCE

NASDAQ UK Index

45.0%

UK CPI

NASDAQ Global ex-UK Index

British Government Gilt Index

35.0% 25.0% 15.0% 5.0% -5.0% -15.0% 31/3/20

31/5/20

31/7/20

30/9/20

30/11/20

31/1/21

31/3/21

Sources: Castlefield, Pershing and Alpha Terminal from 31/12/19 to 31/03/21 Past performance is not necessarily an indicator of future performance. Returns are not guaranteed. With investment your capital is at risk.

Investors remain generally confident about this year.

driven by technology companies and by the

of $1.9 trillion, then followed this with an

craze for SPACs, or Special Purpose Acquisition

enticing promise of $2 trillion in infrastructure

Companies, which accounted for about half of

spending.9 Staggering figures.

all funds raised. A SPAC is essentially a cash

UK equities performed well in Q1, recovering

5

shell company set up by investors with the sole

some of last year’s relative under-performance,

Late March brought news of a blockage

purpose of raising money through an IPO to

with the “all cap” measure showing positive

in the Suez Canal, as the Ever Given, a 400

eventually acquire another company. A SPAC

returns of 11.1%. Cyclical and “value” stocks

metre-long container vessel, become wedged

doesn’t itself generate any revenue.

extended their recovery, which was first seen

across the Suez Canal, bringing one of world's

In the US, the Democrat Joe Biden took

last November. A number of domestically

major shipping routes to a halt and According

office on a chilly January day in Washington DC.

focused areas of the market also outperformed

to the BBC, about 12% of global trade, around

On Wall Street, stock prices were volatile but

as the forward-looking data improved. The

one million barrels of oil and roughly 8% of

generally made progress in the first quarter,

IHS Markit/CIPS composite PMI rose in March

liquefied natural gas pass through the canal

with investors cheered by the new man in the

to 56.6 (flash reading)10, the best UK growth

each day. It’s worth noting that this amount

White House, progress on vaccinations and

rate for seven months, in anticipation of the

of trade, worth around $9.6 billion according

lockdowns as well as news of a Federal fiscal

relaxation of lockdown measures which began

to the same source, was eventually freed up

shot in the arm6 and rumours of a wall of

in March.

by a relatively small number of tugboat pilots,

private money waiting to be deployed.

4

European stocks (excluding the UK)

7

dredger captains and digger drivers. The global

For markets, this led to positive returns

returned 10.2% for the quarter in Sterling terms.

economic consequences of this disruption will

all round. Global equities advanced in Q1 by

Hopes of global economic recovery supported

probably be felt this quarter.

11.2%8 in sterling terms, supported by the roll-

sectors, such as energy and financials,

Despite all this, investors remain generally

out of vaccines and news of the further US

which had done badly in 2020. Consumer

confident about this year. Active IPO markets

fiscal stimulus. In America, equities started the

discretionary stocks, such as Volkswagen AG,

are a manifestation of this ebullience; according

year unsteadily but still made progress in Q1,

also performed well – especially in March.11

to Bloomberg, the first three months of 2021

up 10.3% in GBP terms, as new President Joe

Japanese equity markets also had a strong first

were the most active ever for fundraising,

Biden first confirmed a fiscal stimulus package

quarter, advancing 11.8%.

4. https://www.bbc.co.uk/news/business-56559073 5. https://www.bloomberg.com/news/articles/2021-03-13/global-ipo-market-eyes-record-first-quarter-even-as-spacs-falter 6. https://www.forbes.com/sites/niallmccarthy/2021/03/11/whats-in-the-19-trillion-stimulus-package-infographic/?sh=22bf052a7e07 7. https://www.blackrock.com/us/individual/insights/taking-stock-quarterly-outlook 8. Source for all index performance figures: Financial Express Index Returns 9. https://www.ft.com/content/d52d49b1-444d-4296-a4d1-6c0fbb830691 10. https://www.schroders.com/en/global-syndication/2021/april/quarterly-markets-review---q1-2021/ 11. https://www.reuters.com/companies/VOWG_p.DE/charts

3


S u s t a i n a b le Fu nds Qua rte rly

THEMATIC REVIEW

IMPACT

to society, with the proviso that they would

explicitly accepted that at the outset and were

With the clocks now moved forward and the

accept a lower level of return at the outset or,

prepared to accept receiving no return in their

evenings lighter, continuing positive news on

in some cases, that if a certain level of benefit

desire to help generate positive social impact.1

the covid-19 vaccination roll-out in the UK

wasn’t achieved then they wouldn’t receive a

and the prospect of putting the tough winter

return on their investment at all. This uncertainty

were keen to ensure that investors weren’t

lockdown behind us, a sense of welcome

of return marked the concept out as different,

misled as to the nature of what they were

optimism is palpable in the air and not a

bringing a risk of lower or even no returns when

accessing and took a strict approach to

moment too soon. Let’s hope that in three

compared with traditional investments. Of

requiring explicit information as to what

months’ time, the picture looks brighter still.

course, stock markets provide no guarantees as

returns might be given up by such schemes.

Turning to this quarter’s thematic piece, we’re

to returns but the crucial difference in our eyes

However, in recent years the term ‘impact’ has

taking a slightly different tack to previous

is that impact investing explicitly states how a

become much more commonplace and more

editions in that, rather than railing against

return will be generated or not.

readily associated with regular investment

regulatory

authorities

policy failures or championing the positive

One of the best examples of this was the

opportunities than the kind of specific vehicles

ground gained in seeking a fairer, more

Peterborough Social Impact Bond launched by

such as the Social Impact Bond. Crucially, the

sustainable future for all, we aim to tackle the

Social Finance. It aimed to tackle the problem

sense of an uncertain return has faded away

subject of impact in investment.

of repeated re-offending by prisoners serving

too, meaning impact is now talked about in

short sentences, believing that a different way

a very different sense to how it was until

of doing things was possible compared to the

relatively recently. Our view remains that true

typical outcome of a prisoner completing a

‘impact investing’ is of a similar nature to the

sentence, leaving jail with little money and no

Peterborough Bond and the acceptance of

support network, and the need to navigate

lower returns, while ‘impact’ in a more general

several institutions if they were to stand a chance

sense is a different matter entirely and related

of getting themselves back on the straight and

to analysing ordinary investment options.

Making an impact can occur in different ways and this is true in the world of investment every bit as much as it is in our daily lives.

narrow. Faced with such a situation, many fell

In the modern sense then, impact is used

back into crime. So the team behind this bond

widely to illustrate the combination of investors’

set out to offer a support structure that they

assets and their environmental and social

Making an impact can occur in different

believed would reduce the re-offending rate; in

exposure. Investing in a fund with investment

ways and this is true in the world of investment

order for investors to receive a return on their

in wind power will, all else equal, have a

every bit as much as it is in our daily lives.

investment, that rate had to fall by at least the

smaller carbon footprint than one invested

Furthermore, the term is seeing wider use in the

7.5% target versus a control group that was set

in fossil fuels. As a result, such a divergence

industry and an increasing number of options

by the Ministry of Justice. When the scheme

is sometimes now demonstrated by way of

promising to achieve impact with investors’

finished, it was announced that the rate had

the benefit a fund is deemed to deliver when

assets. What does this mean and what do we at

fallen by 9%, meaning that the investors who

compared to a traditional stock market index

Castlefield think about it? Here, I set out a few

supported it received their capital back along

on metrics such as carbon emissions or water

thoughts to put it in context and to explain what

with an effective annual return of 3%. The

intensity. This has become known as ‘impact

steps we’re looking to take.

promised impact was delivered, so a return was

reporting’ and is growing in popularity alongside

In our view, the genesis of ‘impact investing’

payable. Those investors may have foregone

the increasing interest in ESG (Environmental,

was the offering of opportunities to invest in

the maximum returns they could possibly have

Social & Governance) investing.

schemes that aimed to deliver a tangible benefit

earned elsewhere over that period, but they

1. https://www.socialfinance.org.uk/peterborough-social-impact-bond

4

Understandably,

To date, we’ve not produced an impact


TH EM ATIC REVIEW 

  27 Ap r 2021

report for our work. There’s a good reason

portfolio impact with real-world impact when

our own. We hope nonetheless to demonstrate

for this, namely that defining what ‘impact’

one may not cause the other. Reducing the

that the effect of our work is to marry up your

is remains a fluid term. We’ve discussed the

exposure to carbon emissions in a portfolio is

assets with companies contributing to a more

challenges of impact reporting with leading

not the same as a set of companies reducing

sustainable future. In future, we may be able

investors in the field and concluded that

their actual emissions.

to demonstrate explicitly that next level of real

that there’s no defined answer, with many

world impact, if for now we have to settle for

heads being scratched to work out what the

knowing that the companies we invest in have

best approach is. The reason for the headscratching on our part is that we want to avoid what’s known as ‘impact washing’. In the same way that ‘green washing’ is the term for companies puffing up their green credentials based on flimsy grounds, impact washing is the practice of claiming meaningful impact from an investment approach when the claims might

The kind of companies we seek to invest in are making tangible improvements in environmental and social aspects.

policies which make for a cleaner and fairer world. Until then, we’re looking forward to identifying the difference our approach offers compared to the norm and then relaying that on to you, our investors, so you can see the difference your assets are making.

be spurious and far removed from the kind of tangible outcome seen in the Peterborough

What does this mean in practice for our

example. We’re working out what we can show

investors? We’re currently assessing several

that’s meaningful and not spin.

options with which to demonstrate what

Our conclusion is that ‘impact reporting’

potential benefits your assets are aligned with;

is a term now widely accepted as relating to

in other words, we intend to begin impact

an assessment of the potential benefits of

reporting for you in the very near future. We’re

owning a set of investments as compared to

clear that what we are doing is reporting on the

alternatives that don’t take ESG factors into

investment aspect and are not claiming these

account. It isn’t tangible impact of the sort that

to be the same as real-world changes. The kind

may mean accepting a reduced or nil return

of companies we seek to invest in are making

as a consequence of a particular investment.

tangible improvements in environmental and

Nor do we believe that you can readily equate

social aspects, we’re just not claiming them for

Written by Simon Holman

5


S u s t a i n a b le Fu nds Qua rte rly

COLLABORATIVE ENGAGEMENT: CARBON DISCLOSURE PROJECT

In December 2020, Castlefield became

This is achieved through greater transparency

investor signatories to CDP (formally known

and accountability of the highest emitting

as the Carbon Disclosure Project). CDP are a

firms. CDP send out questionnaires annually

global not-for-profit charity organisation that

to relevant companies regarding their climate

operates a standardised disclosure framework

change, forestry and water impacts. These

that allows investors and companies (among

questionnaires are aligned with the Task Force

others), to measure, track and compare the

on Climate Related Disclosure (TCFD) best

environmental impact of a business against

practice guidelines meaning that any CDP

historical figures, and also with peers. CDP

disclosures can also be used by companies to

was formed in 2000 and was the first platform

help improve disclosure in their annual reports.

linking the environment with the fiduciary

3

duty of investors.

The data within the responses is then collated

and assessed with the discloser given an overall

every company responds to these calls – last

Since its inception, CDP has gone on to

score for each of the relevant questionnaires

year only 33% of the companies contacted

become the holder of the world’s largest and

returned. By achieving signatory status, we

responded.5 This campaign aims to rectify this

have aligned ourselves with numerous other

through investors and asset owners contacting

environmentally responsible asset owners

the non-responders directly, utilising their

Since its inception, CDP has gone on to become the holder of the world’s largest and most comprehensive dataset of environmental disclosure information.

helping to reaffirm our commitment in the

influence as shareholders to implore them to

fight against climate change.

disclose. We have agreed to contact all of the

most comprehensive dataset of environmental

CDP contacts 7,500 companies to complete

disclosure information.2 The overarching aim

their standardised thematic questionnaires in

of CDP is to help create a thriving economy for

order to improve the quality and comparability

both people and the planet in the long term.

of environmental data.4 Unfortunately, not

1

In addition to becoming CDP signatories, we

identified companies within our holdings across

are pleased to announce that in March we signed

our different fund ranges by sending letters to

up to become active participants in the 2021

those that have either failed to respond or have

CDP Non-Disclosure Campaign. This campaign

not provided sufficient information in response

is one of several collaborative engagements

to CDP’s initial contact. By increasing the quality

that bring together CDP signatories from

and availability of climate related data, we hope

all over the world with the collective aim of

to help further the transition towards a more

improving environmental disclosure. Every year

sustainable net-zero environment.

1. https://www.cdp.net/en/info/about-us/what-we-do 2. Ibid 3. https://www.cdp.net/en/articles/climate/on-the-5-year-anniversary-of-the-tcfd-a-critical-reminder-to-companies 4. CDP 2021 5. Ibid

6

In addition to becoming CDP signatories, we are pleased to announce that in March we signed up to become active participants in the 2021 CDP Non-Disclosure Campaign.

Written by Barney Timson


27 Ap r 2021

ENGAGEMENT CASE STUDY: DIVERSITY

We have written previously about our

publicly disclose a policy regarding diversity

letter, setting out how diversity is of paramount

engagement with AIM-listed businesses on

and

where

importance to the company’s culture and

the topic of diversity. This has continued into

possible. We also asked companies to outline

ethos. It was clear from their detailed and

the new year, with the team meeting with

what internal policies are in place to develop

considered response that the company had

management of a number of companies to

a pipeline of talent to promote women and

been addressing this issue internally for some

discuss their approach to the issue.

minority ethnic employees at all levels of the

time and were able to provide information

organisation. We believed it was important to

around gender, age, ethnicity, and faith as

discourage boilerplate text and explained that

well as additional policies on flexible working

we would instead welcome tangible evidence

arrangements and their work with local charities

of what actions the board are taking in order to

to provide work experience opportunities. We

encourage and improve diversity.

believe that Mattioli Woods has exhibited a very

The executive director population surveyed in a 2019 KMPG report has female directors accounting for just 7%.1 While over the past few years, we have seen success in an increasing level of gender

publish

aspirational

targets

Pleasingly, we have received a good number

strong culture and their response continues

of high-quality responses as well as offers for

to demonstrate their commitment to their

calls with either executive management or

workforce and local community.

non-executive directors to discuss the topic

Secondly, Keywords Studios, an outsourcing

and outline their plans, policies and thinking

provider for the gaming industry, offered a call

going forward.

with their Chief Financial Officer and Investor

diversity for larger listed businesses, within

Having now conducted these follow up

Relations Director to discuss their ambition and

AIM, the sub-market of the London Stock

calls, we wanted to take this opportunity, ahead

aims regarding reporting on this topic. Keywords

Exchange for small and medium-sized growth

of publishing a separate report on our findings,

have committed to provide detailed reporting

companies, gender diversity levels remain low:

to highlight a couple of responses from

on several additional ESG topics in their next

the executive director population surveyed

companies that we felt were very strong in their

annual report and were able to speak to us about

in a 2019 KMPG report has female directors

consideration of diversity in their workforce.

a number of initiatives that had been set up to

accounting for just 7%. Other forms of diversity,

Firstly, Mattioli Woods replied with the

support this. These included the monitoring of

such as age and ethnicity among others, are

most substantive response we received to our

diversity at an individual country level rather

1

more difficult to track, but from our experience,

than just at group level, the establishment of a

and the findings of The Parker Review which

Global Diversity Council, and their intention to

surveyed larger businesses, transparency and reporting has been limited. We believe boards that genuinely embrace cognitive diversity, as manifested through appropriate gender and ethnic representation and a broad spectrum of skills and experience, are more likely to achieve better outcomes for investors. In the letters we sent to AIM-listed investee businesses, we encouraged the companies to

Mattioli Woods replied with the most substantive response we received to our letter, setting out how diversity is of paramount importance to the company’s culture and ethos.

actively seek increased diversity at Board level in succession planning.

Written by Amelia Overd

1. https://assets.kpmg/content/dam/kpmg/uk/pdf/2019/04/aim-survey.PDF

7


S u s t a i n a b le Fu nds Qua rte rly

CRODA AND SUSTAINABILITY IN THE CHEMICALS SECTOR

Company awareness of ESG issues and the

sustainability targets. Some achievements

impact they have on the world is continuing to

during this period were improving energy

increase and we are pleased to see our investee

intensity and ensuring 85% of palm derivatives

companies stepping up their commitments in

are now sustainable. In addition, one quarter of

this area. Founded in 1925, Croda International

the fuel used is now from non-fossil sources.

is a global company which creates and sells

Croda has received multiple commendations

speciality chemicals that are relied on by

for their performance. One of the most notable

industries

everywhere.

being credited by EcoVadis who ranked the

Operating in over 35 countries, Croda is

and

consumers

company in the top 1% of all companies

responsible for high performance ingredients

assessed globally.

and technologies in some of the biggest, most

Croda have categorised future goals into

hector of land used, Croda will save double

successful brands in the world. Sustainability

the areas of climate, land and people. In respect

through the use of their new technologies. It

is at the heart of its business model and

to climate, the company’s most significant

is predicted that the company’s technology

they embrace their responsibility to pursue

aim is to make a 25% reduction in absolute

will save at least 80,000 hectares of land more

sustainable growth, making it a good fit for

Scope 1 and 2 emissions. Scope 1 emissions

than in 2019.

our portfolio here at Castlefield. They recently

refer to the direct emissions from Croda’s

Their team also discussed how they aim to

hosted a specialist ESG investor event in which

owned or controlled sources, whereas Scope 2

apply their innovation to increase the positive

they discussed their ‘restorative strategy’,

emissions refer to the indirect emissions from

impact on wider society. For example, one of

whereby they aim to give back more than they

the generation of Croda’s purchased electricity,

their key goals for people positivity was the

take away and the company’s aims are to be

steam, heat and cooling consumed. In addition

aim to protect one million more lives from skin

climate, land and people positive by 2030.

to this, they are targeting 100% Scope 3 impact

cancer with their sun protection technologies.

Croda is responsible for high performance ingredients and technologies in some of the biggest, most successful brands in the world.

coverage. This refers to all other indirect

In summary, the event was a good

emissions that occur in their value chain. In

opportunity to go through the details of Croda’s

addition, we learned that Croda’s climate aims

ambitious sustainability strategy and hear

for the future will ensure that their products

first-hand from the professionals tasked with

will save two million tonnes of CO2 emissions.

achieving those goals. We will be monitoring

Regarding their land positive goals, we

their progress with interest.

learned that the business was successfully land net zero in 2020. This means that all of the bio stimulants, adjuvants and seed coatings they use save more land than is needed to grow all of their bio-based raw materials. Despite this,

Between 2015 and 2020, the company

management plan to go even further with their

made good progress against six of their

aims for land positivity in the future. For every

All information sourced from Croda & Castlefield www.croda.com www.croda.com/en-gb/investors/investor-events/investor-events-2021

8

One of their key goals for people positivity was the aim to protect one million more lives from skin cancer with their sun protection technologies.

Written by India Harkishin


27 Ap r 2021

ENGAGEMENT: SARASIN & PARTNERS AND COMPASS GROUP

A Compass Group subsidiary, Chartwells, has been in the press in recent months over allegations that it has been distributing inadequate and incomplete free school meals packages to vulnerable families.1

Our Castlefield fund range does not invest

had shortages and issues occurred due to a

management and the board are committed to

directly in Compass Group. However, our

number of factors. For example, the company

ensuring that no further problems arise.

CFP Castlefield B.E.S.T Sustainable Portfolio

did not receive notice of the new lockdown

Sarasin have assured us that they will

Growth Fund invests in Sarasin’s Food and

and so had to mobilise quickly. In addition, they

continue to monitor the situation closely, as

Agriculture Opportunities Fund which does

outsourced distribution to the local level, but

will we, to ensure that these standards are

indeed hold a stake in the catering and support

this meant that there wasn’t the usual quality

upheld. Given how important these food

services firm. A Compass Group subsidiary,

assurance that they’d had in place for previous

packages are to so many families, there is

Chartwells, has been in the press in recent

lockdowns (where parcels had been created

very little margin for error.

months over allegations that it has been

centrally). It appears that in the case of the

distributing inadequate and incomplete free

incomplete boxes, the chef had insufficient

school meals packages to vulnerable families.

1

supplies but decided to send out incomplete

We contacted Sarasin to discuss the

boxes so that the recipient families would

matter and to their credit they emailed a

have access to some food.

detailed response to us within the hour. Their

Compass is now requiring all food packages

response outlined conversations that Sarasin

to be photographed before being distributed.

have had with Compass, which they say has

Photos are sent to Compass centrally to

offered some reassurance that the company

ensure that standards are maintained. Food is

is moving in the right direction. Compass

also being ordered centrally to ensure that the

estimates that 2% of the parcels distributed

correct items are being sent to families. Senior

Written by Ita McMahon

1. https://www.theguardian.com/education/2021/jan/12/not-good-enough-marcus-rashford-condemns-free-school-meal-packages

9


S u s t a i n a b le Fu nds Qua rte rly

COLLABORATIVE ENGAGEMENT

Global Investor Statement in Support of an Effective, Fair and Equitable Global Response to COVID-19

On 23rd February, we joined close to 150 institutional investors who issued a joint statement calling for a fair and equitable global response to the pandemic. This is an

At Castlefield, we believe that it is imperative

increasingly pressing topic. Of the 128 million

that lower-income nations are not left behind

doses of COVID-19 vaccines administered so

in the race to roll out a vaccine and it’s crucial

far, over three quarters have been delivered

that the acutely unequal power dynamics at

in 10 countries which account for around 60%

play within vaccine manufacture and global

of global GDP.1

world leaders must also recognise the serious economic consequences of not curbing the spread of coronavirus in less developed markets.

health are recognised and addressed. We

There are very clear moral issues at the

stands to lose as much as US$9.2 trillion.2 This

have therefore joined other investors calling

heart of vaccine distribution and the current

demonstrates a clear economic argument, an

for a clear strategy to ensure the reasonable

health and social cost of the pandemic.

‘investment case’ for a coordinated approach

distribution of COVID-19 vaccinations globally.

However, world leaders must also recognise

to vaccine distribution across the world.

We joined close to 150 institutional investors who issued a joint statement calling for a fair and equitable global response to the pandemic.

the serious economic consequences of not

In the statement coordinated by the

curbing the spread of coronavirus in less

Access to Medicine Foundation, institutional

developed markets.

investors, including Castlefield, have pledged

A study from the International Chamber

their support for the Access to COVID-19

of Commerce Research Foundation concluded

Tools (ACT) Accelerator, a global collaborative

that

spread

initiative to accelerate the development,

across emerging markets while developed

production and equitable access to tests,

economies

treatments and vaccines for COVID-19.

if

infection make

continues progress

to with

their

vaccination programmes, the global economy

The initiative builds on the outcomes from the first virtual meeting of G7 leaders in mid-February, where members announced over US$4.3 billion of investments into the ACT Accelerator and paves the way for a series of G7 and G20 meetings in the coming months, following the creation of the G20 High-Level Independent Panel on financing the Global Commons for Pandemic Preparedness and Response.3 You can find the full investor statement at the following link: accesstomedicinefoundation.org/news/ investors-issue-urgent-call-for-fair-andequitable-global-response-to-covid-19

1. https://accesstomedicinefoundation.org/news/investors-issue-urgent-call-for-fair-and-equitable-global-response-to-covid-19 2. https://iccwbo.org/media-wall/news-speeches/study-shows-vaccine-nationalism-could-cost-rich-countries-us4-5-trillion/ 3. https://www.who.int/news/item/19-02-2021-g7-leaders-commit-us-4.3-billion-to-finance-global-equitable-access-to-tests-treatments-and-vaccines-in-2021

10


27 Ap r 2021

ENGAGEMENT CASE STUDY: ORPEA

At Castlefield, we are long-term investors

acute clinical care residencies in France until

quickly understood that the potential problem

by which we mean that our holding period

2005 when it branched out into Germany,

was more about Orpea’s lack of response

is significantly longer than many of our

Switzerland and Spain. Since then, international

rather than something else.

peers, who may take advantage of small

expansion has been a driver of growth, and

So, we contacted the company, where we

price movements to switch positions in their

France has become a smaller, though central,

foster regular and very open communication

portfolio. A longer holding period has several

part of the business. The business model is

and told them that UniGlobal was missing lots

advantages, amongst which is the lower

very centralised and one of the things we fully

of required data. We found out very quickly

costs associated with a fund that does not

endorse is a disciplined systematic way (the

why there had been no response and were

churn its portfolio. Many funds trade more

Orpea way) of doing business. This makes it

able to return to UniGlobal to point them in the

than 100% of their holdings in a single year.

very simple for the centralised management

right direction with their questions. We were

We aren’t like that. The advantage which we

team to monitor progress and integrate best

pleased to see that the company responded

want to talk about here is the relationship

practice across the group, which looks after

very quickly to all the points that UniGlobal

that we are able to build with the companies

well over 100,000 beds.1

had highlighted and this means that the right

held in our portfolios. We may be small on

This does present a challenge, of course,

people are now talking to each other. Labour

the investor register but the type of research

with the different employment laws which

union matters are complex and can vary

we carry out means that we are often sought

can vary widely from Brazil to Belgium and

significantly throughout the world. Whilst we

out by companies for feedback on various

the Czech Republic to Colombia. We became

are not experts on collective negotiation or

issues. This builds trust between the various

aware of a piece of work which was published

union law, we are aware that tensions between

stakeholders and our reputation as thoughtful

by the Association of Global Unions (UniGlobal),

unions and management are more likely to be

investors means that our approach is one of

highlighting several issues to do with adult

resolved if the right people from both sides

quiet diplomacy. Sometimes we will act as

social care, and we were perplexed to see

are able to find each other so that they can

facilitator between a company and an NGO,

that Orpea, despite its discipline and excellent

listen and respond to the other party’s points.

with whom we also foster relationships.

results during the COVID-19 pandemic, was

This quarter we want to tell you about

not scoring highly on UniGlobal’s results. We

Orpea, the French company involved in Adult

contacted UniGlobal to find out the reasons

Social Care right across the world. Orpea

behind this and had an in-depth meeting with

started life in 1989, running care homes and

the team who explained to us why this was. We

Article by Rory Hammerson

1. https://www.orpea-group.com/le-groupe/qui-sommes-nous-en/orpea-worldwide

Orpea started life in 1989, running care homes and acute clinical care residencies in France until 2005 when it branched out into Germany, Switzerland and Spain.

11


S u s t a i n a b le Fu nds Qua rte rly

VOTING ACTIVITY: Q1 2021

As investors, we believe that we have a responsibility to our clients, as well as the companies that we hold, to vote on issues such as executive pay, director nominations and political donations. We aim to vote on all the stocks held in the collective funds we manage. We consider each resolution carefully and often engage with companies where we disagree with their approach. We have an in-house set of voting guidelines that we update annually. The guidelines ensure that we vote consistently across all our fund holdings and are made publicly available on our website, as is our full voting history.

1.

REMUNERATION

RESOLUTIONS 191

81.3%

Number of resolutions where votes were cast Against

41

17.4%

Number of resolutions where votes were Abstained

3

1.3%

Number of resolutions where votes were cast For

During the quarter, we voted at 24 meetings hosted by our investee companies, with a total of 235 resolutions.

We vote against excessive pay awards and awards that are not attached to sufficiently stretching performance targets. Particularly in light of the impact of coronavirus, we believe it is important that executive pay is reflective of the experiences and outcomes of all stakeholders.

2.

DIRECTOR INDEPENDENCE & EFFECTIVENESS

Non-Executive Directors (NEDs) who sit on the boards of listed companies should be independent in order to be effective. The UK Corporate Governance Code sets limits on tenure which we apply across all geographies as a factor to determine independence. We have also long taken the view that directors should not hold a lot of other external positions. This is because, at a time of crisis, we expect directors to have enough additional time to dedicate to the company and the issues that it is facing.

3.

SHAREHOLDER RIGHTS

This topic includes votes on issues such as share placings that a company might undertake to raise capital, as well as requests a company might make to repurchase its own shares. These requests have the potential to be detrimental to existing shareholders. One topic which falls under this heading, which we will always vote against, is the request to hold meetings with just 14 days’ notice, as we do not believe this is sufficient time for shareholders to prepare to exercise their voting rights.

4.

POLITICAL DONATIONS

We do not think it is appropriate for companies to make political donations and consequently will always vote against a resolution seeking permission to do so.

5.

THE AUDIT PROCESS

Auditor independence may be compromised if the auditor has been in place for a long time and no tendering process has been undertaken, or if fees paid are for services other than their primary audit function.

6.

ROUTINE/BUSINESS:

Items in the category include resolutions that are often uncontentious, such as accepting a company’s Financial Report & Accounts for the previous year. It also includes resolutions to approve dividends.

7.

OTHER

This category may include certain resolutions proposed by shareholders and votes on topics such as Environmental, Social or Governance (ESG) issues and reporting.

12


VOTIN G A C TIVITY 

  27 Ap r 2021

Resolutions during the quarter by category and how frequently we voted against or abstained:

Votes Against or Abstentions

Resolutions 0

Other

1 2 2

Political Donations

9

Audit

25

7

Directors

72

5

Routine/Business

49 4

Shareholder Rights

58 17

Remuneration 0

10

28

20

30

40

50

60

70

80

UK Voting Season While the number of meetings we are reporting on for the first quarter of the 2021 is relatively low, the majority of our voting activity takes place between April and July. This is known as ‘voting season’ or ‘proxy season’ and occurs due to company reporting deadlines, with a large number of companies having a financial year which corresponds to the calendar year. During Q2 in 2020, we voted at 89 company meetings, compared to a figure of 197 for the full year, around 45%. Voting season last year was thrown into disarray by the emergence of the pandemic, with companies being forced to make use of technology to host virtual AGMs. We expect virtual and hybrid meetings to persist this year as COVID-19 and government restrictions continue to play a significant role, but also into the future in order to increase accessibility for smaller shareholders. Looking ahead now to the upcoming voting season in 2021, we feel that companies will experience the growing investor sentiment towards environmental, social and governance (ESG) considerations, with the prior year having brought many of these issues to the forefront of the public consciousness. We feel that executive pay will be under increased scrutiny this year. In our experience, many companies opted to proceed cautiously last year, taking into account the wider stakeholder experience by reducing salaries temporarily or foregoing bonuses due to the pandemic. However, moving into this proxy season and beyond, we expect that companies may see more greater challenge on resolutions regarding pay. We are also seeing greater emphasis on using voting as a mechanism to express concerns around boardroom diversity. With the deadline for voluntary targets set by the Parker Review, which recommends boards have a minimum of one ethnic minority member by 2021 now rapidly approaching, companies who have not at the very least developed a plan to meet this target, may find themselves facing challenge.

13


S u s t a i n a b le Fu nds Qua rte rly

CHANGES TO OUR VOTING GUIDELINES FOR 2021 Written by Ita McMahon

As equity investors, we have the right to vote at the AGMs and other shareholder meetings of the companies that we hold in our funds. We have a set of guidelines, updated annually, that set out some general principles on how we will vote in given circumstances. We take our voting responsibilities seriously and have thought carefully about the principles that underpin our voting decisions. These decisions cover a range of issues, from re-electing directors to re-appointing the auditor. Every year we review our voting guidelines and amend them if the need arises. This year, we made two main changes.

1. LOWERING THE BONUS CAP

2. AUDIT FEES

Firstly, and most significantly, we lowered our variable pay limit.

The other change to our voting guidelines this year relates to audit fees. Our guidance used to allow auditors to carry out a

What does this mean? Variable pay means bonuses – variable

certain amount of non-audit work up to a maximum of 100%

because they should increase or decrease depending on how

of audit fees. However, having seen many more audit failings in

well the company has performed. Investors have the opportunity

recent years, we decided to take this to zero – i.e. that to avoid any

to vote on the pay arrangements of senior company executives.

potential conflict of interest, an auditor should not be carrying out

At Castlefield, we have long advocated for a more restrained

any non-audit work. This year we have changed this slightly and

approach to directors’ pay. For a number of years, our policy was

have incorporated a £10,000 allowance for the auditor for de

to vote against executive pay arrangements where the variable

minimis services. This is to allow for small projects that it would be

pay potential was more than three times an executive’s base

unrealistic to tender for or for tasks where the auditor would be

salary. This year, we have lowered that limit further and will vote

best placed, or even required, to carry out the work (e.g. providing

against schemes where variable pay is more than double the base

a report to a lender). In our view, £10,000 is small enough to avoid

salary. We suspect we are one of a very small number of investors

any conflicts.

to set a cap on variable pay. Our reason for lowering it was in part because we know that there is strong public sentiment to rein in executive pay (and here we are using public sentiment as a proxy for our clients’ views). Secondly, the pandemic should make all companies re-evaluate how they treat all employees, not just those at the top. In our view, there will be increased scrutiny of executive pay in the years ahead and greater calls for more equitable pay arrangements. We will be raising this issue with companies, not just through our voting, but through our conversations with board members as well.

14


27 Ap r 2021

SPOTLIGHT ON...

CFP Castlefield B.E.S.T Sustainable Income Fund This income-focused equity fund was the first of our strategies to implement our B.E.S.T research process, a move which took place in July 2012 and saw it become what was believed to be one of the first such income-focused funds to exclude explicitly investment in the Oil & Gas and Mining sectors, given our concerns over fossil fuels and climate change. The success of this change of mandate to incorporate detailed ESG research into our process paved the way for our subsequent fund launches or transitions and accelerated the evolution of our approach to where it is today.

The Renewables Infrastructure Group plc The fund’s primary aim has been to deliver an above-average level of income for investors and to do so while using responsible and sustainable

The Renewables Infrastructure Group plc – or ‘TRIG’ for short - is a UK-

investment policies to guide its stock selection process. Much of the UK’s

listed renewable energy infrastructure fund which, as with the likes of

dividend income is derived from large, mature companies in industries

Greencoat UK Wind and Greencoat Renewables, we’ve been investors

which don’t sit comfortably with values-led investing, such as arms

in and supporters of since its launch. As at the end of December 2020,1

manufacturing, tobacco, and oil production. Recognising that there

TRIG had investments in over 75 wind, solar and battery storage projects

was a dearth of options for investors wanting an income from their

with an aggregate net generating capacity of over 1.8GW. Of this,

investments but wishing to avoid such industries, we instead turned

offshore wind accounts for approximately one-third of the portfolio.

our eyes to the nascent renewable energy infrastructure sector, an area

Wind and solar remain the primary focus of the company and while it

now well-established several years later. The current pandemic has

has added exposure to battery storage, the managers expect to let the

brought particular challenges for income investing given the backdrop

sector develop further before they might consider meaningfully adding

of companies cancelling or suspending dividends, whether voluntarily

to it. Similarly, the core focus of the investments is in Europe and the

or being forced to, yet our fund has avoided the worst of the falls and

UK, which they believe to be large enough for them without pushing to

insulated investors from the full force of income cuts.

expand into e.g. the United States, or Australia. As with similar such companies, TRIG listed on the stock market with an offer of a high and inflation-linked dividend payment. This had and retains substantial attractions for income-focused investors, yet the intention to acquire further assets over time and therefore to grow the capital invested has made for a compelling total return (income return and capital growth) proposition to date. In addition, beyond the financial return it offers a positive contribution to tackling sustainability challenges; this is demonstrated by the company having supplied clean energy to c1.1 million homes and identifying 1.2 million tonnes of carbon dioxide that have been avoided due to its renewable energy generation. We expect TRIG to be a long-term component of the Portfolio Funds. 1. Source: Castlefield & TRIG

15


SPOTL IGHT ON 

  S u s t a i n a b le Fu nds Qua rte rly

Royal London Ethical Bond The Royal London Ethical Bond Fund, managed by Eric Holt, is a key holding in the Fixed Income segment of our Portfolio Fund range alongside the Rathbone Ethical Bond Fund, which we highlighted in our Q320 quarterly, and has long been a part of strategy. It is structured around negative screening and considers among its list of criteria the avoidance of alcohol, armaments, gambling, pornography, tobacco, human rights, animal testing and environmental impact, with the criteria reviewed on a quarterly basis. The team expect the fund’s returns – which have been consistently good for several years now – to be driven over the long-term primarily by stock selection and with an emphasis on detailed in-house credit analysis rather

Belong Living (Belong)

than relying on external credit ratings. This analysis is typically focused on corporate bonds rather than government bonds, as the team believes that

Belong is another example of an investment made via the Retail

greater inefficiencies can be found in the market for the former, which

Charity Bonds platform like the Golden Lane Housing and Charities Aid

can then be identified and exploited. The inherent difference between

Foundation bonds under the spotlight in previous quarterly reports.

owning a share in and a bond issued by a company make for a different

It’s a not-for-profit charity which provides specialist dementia care as

dynamic in sustainable investment, as bondholders have no ability to

well as independent living apartments, and operates in the North West.

vote on e.g. executive remuneration or Board composition. This means

Belong has worked closely with its architects to ensure the design and

that employing a suitable filtering approach is a pre-requisite for a bond

layout of its buildings maximise independence and wellbeing. As well as

fund to be considered suitable, and we’re very comfortable that the Royal

this focus on the built environment, Belong places emphasis on training

London team’s screening policy and investment returns merit its inclusion.

all its people in the latest approaches in person-centred care, ensuring people are supported to live life to the full. In addition to providing care within its own facilities, it also provides domiciliary and outreach care services for customers remaining within their own homes. As with other such charity bond issues, we’ve felt that the interest coupon offered is very attractive at a time when interest rates have fallen to historic lows and in Belong’s case, a 4.5% coupon compared favourably to what was available elsewhere. This combination of an attractive financial return and our analysis of the social benefits the company offers makes for a suitable investment in our eyes. The Belong approach is centred around giving its homes and villages a community feel which is perhaps unlike that found in traditional care home approaches. This attention to detail in providing the best surroundings for dementia sufferers has the potential to make a real difference to its residents.

16


27 Ap r 2021

FUND COMMENTARY CFP CASTLEFIELD B.E.S.T SUSTAINABLE PORTFOLIO GROWTH FUND Key Information

Top 10 Holdings

Fund Size:

£50.96M

Sector:

IA 40 - 85% Equities

Launch Date:

1-Feb-18

Managers:

Simon Holman and David Elton

Number of Holdings:

25-35

Payment Dates:

Quarterly

1

CFP CASTLEFIELD B.E.S.T SUSTAINABLE UK OPPORTUNITIES FUND 2 CFP CASTLEFIELD B.E.S.T SUSTAINABLE INCOME FUND 3 FIRST SENTIER ICVC STEWART WORLDWIDE SUSTAINABILITY FUND 4 CFP CASTLEFIELD B.E.S.T SUSTAINABLE UK SMALLER COMPANIES FUND 5 CFP CASTLEFIELD B.E.S.T SUSTAINABLE EUROPEAN FUND 6 FP WHEB ASSET MANAGEMENT SUSTAINABILITY FUND 7 CFP CASTLEFIELD REAL RETURN FUND 8 SARASIN FUNDS ICVC SARASIN RESPONSIBLE GLB EQUITY FUND 9 RATHBONE ETHICAL BOND FUND 10 FIRST SENTIER ICVC RESPONSIBLE LISTED INFRASTRUCTURE FUND

Cumulative Performance (%)

% 12.72 9.96 9.33 9.01 7.97 6.77 4.93 3.22 3.19 3.08

The CFP Castlefield B.E.S.T Sustainable Portfolio Growth Fund returned +2.40% in the first quarter of 2021, versus +1.56% for its peers in the Investment Association’s Mixed Investment 40-85% Equities sector. A - CFP Castlefield B.E.S.T Sustainable Portfolio General [19.78%] B - IA Mixed Investment 40-85% Shares [16.61%] 1 Mth

3Mths

6 Mths

1 Yr

3 Yr

Since Launch

Fund

2.33

2.40

8.75

25.44

20.99

19.78

Sector

1.60

1.56

9.68

26.44

21.34

16.61

2

2

3

3

3

2

Quartile

Discrete Performance (%) Fund Sector

2021 YTD 2.40

2020 3.91

2019 17.86

2018 -

2017 -

1.56

5.32

15.78

-

-

2

3

1

-

-

Quartile

Discrete Year to Quarter End Performance (%)

Fund

Q1 2020 Q1 2021

Q1 2019 Q1 2020

Q1 2018 Q1 2019

Q1 2017 Q1 2018

Q1 2016 Q1 2017

25.44

-5.68

2.26

-

-

Source: 01/02/2018 - 31/03/2021. Data from FE 2021 Past performance is not a guide to future performance

Sector Allocation

Global Equity 32.38% UK Equity 31.69% Fixed Income 14.00% Renewable Energy 6.92% Alternative 5.73% Cash 3.87% Infrastructure 3.08% Real Estate Investment 2.33%

The first quarter of the year saw two significant milestones reached for the fund, as it passed its third anniversary in February, and furthermore saw its size surpass the £50m level for the first time. These are both meaningful steps in what we hope is a long-term option for investors looking to see their values reflected in their assets. Relative to the anxiety of the closing months of 2020 amid the fraught UK/EU negotiations and the US Presidential election, it was a quieter quarter for markets, albeit with the constant overhang of pandemic developments to consider. The key development for markets was the increase in longer-dated bond yields, particularly in the United States, where the support and stimulus measures being enacted to offset the pandemic’s economic impact triggered a growing expectation of the inflation rate beginning to increase. This was accompanied by the belief that the Federal Reserve would be quite happy to stoke the economy without worrying about raising interest rates too soon. As with the final quarter of 2020, the leading contributions to performance came from our three UK equity funds, as the domestic market responded favourably to the agreed deal with the EU late in December and the avoidance of the much-feared ‘Hard Brexit’. Our CFP Castlefield B.E.S.T Sustainable UK Smaller Companies Fund led the way here, returning +12.8% for a contribution to performance of +1.03%, ably supported by its UK Opportunities and Income counterparts which contributed +0.75% and +0.5% respectively. In addition, the small position in Capital for Colleagues rose strongly during the month on a positive update, contributing +0.25% to fund performance. Meanwhile, the Gresham House Energy Storage Fund was the leading contributor of the individual infrastructure fund investments within the fund, with the battery storage sector looking increasingly wellpositioned for the energy transition underway. Against a backdrop of rising bond yields, it was no surprise that the holdings in the Rathbone and Royal London Ethical Bond funds both held back returns due to some weakness in the quarter. Overall position sizes in the fund are modest, however, so the impact was more muted than might otherwise have been the case. Elsewhere, the short-term style rotation we had anticipated back in late 2020 continued to play out during Q1, leading to some retrenchment of performance from global equity exposure and the quality and growth bias those selections have amid the more value-focused short-term moves seen in the market. Source: Castlefield and Factset 17


S u s t a i n a b le Fu nds Qua rte rly

FUND COMMENTARY CFP CASTLEFIELD B.E.S.T SUSTAINABLE PORTFOLIO INCOME FUND Key Information

Fund Commentary

Fund Size:

£13.40M

Sector:

IA 20 - 60% Equities

Launch Date:

6-Jul-20

Managers:

Simon Holman and David Elton

Number of Holdings:

25-35

Payment Dates:

Quarterly

Top 10 Holdings 1 2 3 4

CFP CASTLEFIELD B.E.S.T SUSTAINABLE INCOME FUND RATHBONE ETHICAL BOND FUND ROYAL LONDON BOND FUNDS II ICVC ETHICAL BOND FUND EDENTREE INVESTMENT FUNDS AMITY STERLING BOND FUND 5 CFP CASTLEFIELD REAL RETURN FUND 6 FIRST SENTIER ICVC STEWART WORLDWIDE SUSTAINABILITY FUND 7 CFP CASTLEFIELD B.E.S.T SUSTAINABLE EUROPEAN FUND 8 CFP CASTLEFIELD B.E.S.T SUSTAINABLE UK SMALLER COM FUND 9 CFP CASTLEFIELD B.E.S.T SUSTAINABLE UK OPPORTUNITIES FUND 10 SARASIN FUNDS ICVC RESPONSIBLE GLOBAL EQUITY FUND

Sector Allocation

Fixed Income 35.84% UK Equity 26.07% Global Equity 14.88% Renewable Energy 10.06% Alternative 6.85% Infrastructure 3.03% Real Estate Investment 2.20% Cash 1.07%

The CFP Castlefield B.E.S.T Sustainable Portfolio Income Fund returned +1.18% in the first quarter of 2021, versus +0.85% for its peers in the Investment Association’s Mixed Investments 20%-60% Equities sector.

% 19.56 10.64 8.84 8.18 6.04 4.39 3.48 3.37 3.14 3.06

The opening quarter of 2021 brought with it some much-needed relative calm. Despite the best efforts of the outgoing Trump administration to provoke political turmoil in the United States, he was thankfully unable to overturn the legitimacy of the resounding Biden victory, even if the scenes of the Capitol being overrun were shocking at the time. The signs were immediate that President Biden will bring a sense of leadership back to the U.S. and it was heartening to see his immediate moves to restore his nation’s place as part of the Paris climate agreement, and subsequently to talk about tackling climate change. Meanwhile, here in the U.K. the tempestuous waters of late-2020 were stilled by the agreement in December of a deal with the European Union. Real fears had existed that leaving without a deal was possible, which was widely acknowledged as a harmful outcome for the domestic economy. The consensus on our team was that a deal would be struck but it wasn’t taken for granted. It was pleasing to see it agreed and the relief fed through from late-December into the New Year. Once again, the leading overall contributor to performance was our Castlefield B.E.S.T Sustainable Income Fund, which returned +5.0% for a contribution to performance of almost +1.0%. Further strength came from other UK equity exposure, with the B.E.S.T Sustainable UK Smaller Companies fund returning +12.8% for a contribution to return of +0.4%, and the B.E.S.T Sustainable UK Opportunities fund returning +5.9% for a contribution to performance of +0.2%. The fund holds a small position in Capital for Colleagues, which focuses on providing finance to employeeowned businesses and helping them transition to that model, and following a positive management update the shares rose strongly, contributing +0.25% to performance. Both holdings in the battery storage sector contributed positively given supportive news flow, and we continue to be happy holders of the Gresham House and Gore Street Energy Storage funds. Against a backdrop of rising bond yields, our bond funds unsurprisingly gave up ground amid the softness in their sector as a consequence. Between them, the holdings in the Rathbone and Royal London Ethical Bond funds contributed roughly equally to a combined headwind of -0.5% on portfolio performance, with a further -0.1% coming from the position in the Edentree Responsible and Sustainable Sterling Bond fund. Elsewhere, there were small falls in a selection of the renewable infrastructure names and also some modest headwinds from the retrenchment of performance from global equity exposure, where market rotation in the short-term has seen their growth and quality bias overlooked in favour of more value-led approaches. Source: Castlefield and Factset

18


27 Ap r 2021

FUND COMMENTARY CFP CASTLEFIELD B.E.S.T SUSTAINABLE EUROPEAN FUND Key Information

Top 10 Holdings

%

Fund Size:

£17.90M

1

VESTAS WIND SYSTEMS A/S

6.46

Sector:

IA Europe ex UK

2

TELEPERFORMANCE SE

5.55

Launch Date:

1-Nov-17

3

PARTNERS GROUP HOLDING N

4.16

Managers:

Rory Hammerson

4

TECAN GROUP N

3.82

Number of Holdings:

30-40

5

LOGITECH INTERNATIONAL NOM

3.79

Payment Dates:

Semi-annual

6

KONE B

3.71

7

SCOUT 24 AG

3.62

8

GEA GROUP AG

3.44

9

SYMRISE

3.44

Cumulative Performance (%)

10 ACCELL GROUP NV

3.37

Fund Commentary The Fund registered a total return of +0.8%, compared to the sector, which returned +2.6% over the same period.

A - CFP Castlefield B.E.S.T Sustainable European General [27.00%] B -IA Europe Excluding UK [18.41%] 1 Mth

3Mths

6 Mths

1 Yr

3 Yr

Since Launch

Fund

6.07

0.83

5.39

42.85

42.15

27.00

Sector

4.14

2.54

12.54

39.57

24.98

18.41

1

3

4

2

1

2

Quartile

Discrete Performance (%) Fund Sector

2021 YTD 0.83

2020 20.42

2019 27.37

2018 -14.53

2017 -

2.54

10.28

20.33

-12.16

-

3

1

1

4

-

Quartile

Discrete Year to Quarter End Performance (%)

Fund

Q1 2020 Q1 2021

Q1 2019 Q1 2020

Q1 2018 Q1 2019

Q1 2017 Q1 2018

Q1 2016 Q1 2017

42.85

-2.41

1.97

-

-

Source: 01/11/2017 - 31/03/2021. Data from FE 2021 Past performance is not a guide to future performance

Sector Allocation Industrials 27.55% Consumer Services 13.96% Consumer Goods 13.31% Financials 12.20% Healthcare Equipment 8.35% Technology 8.11% Cash 7.68% Chemicals 3.44% Food Producers 2.13% Healthcare Services 2.06% Support Services 1.21%

The first quarter of 2021 was characterised by the continuation of the shift in market style we saw in the final three months of 2020. Sectors which have been ignored by investors looked very interesting, such as financials and other deeply cyclical companies. Robust profit taking in companies that have done well added to the volatility in returns. As is often the case, sell side analysts were way off the mark with their forecasts for Q3 results and just under 60% of European companies beat consensus estimates for operating profit, underpinning the direction of bourses. The best contributors during the quarter were yet again Dutch listed Accell, Dutch lighting giant Signify and French call centre operator Teleperformance. Accell is Europe’s largest bicycle manufacturer and has unsurprisingly benefitted from the increase in demand for bikes, with a particular emphasis on e-bikes, which have proven extremely popular. The company is going through significant transformation, the basis for our investment case, and the increased sales volumes are driving profit margin and returns higher than previously expected by the market. We have continued to engage on a regular basis with our investee companies, and at the end of this reporting period, the average number of interactions with our companies remained just above three for the year. We believe that our best method of influencing better practice and change for good is through consistency of approach and forging relationships with company officers. We have made some significant progress with a number of our companies in terms of reporting and transparency, and continue to believe that quiet diplomacy is the key to success. We bought French support services business Quadient as a transformational stock. Quadient has a new management team. The strong cashflows from the mail room business, which leases franking machines for corporate post is being used to fund the sharp growth in other areas such as cloud based business process solutions and parcel lockers which have seen a sharp increase in demand since the start of the pandemic. We have engaged with management several times prior to the purchase and have met them after the most recent results. Source: Castlefield and Factset

19


S u s t a i n a b le Fu nds Qua rte rly

FUND COMMENTARY CFP CASTLEFIELD B.E.S.T SUSTAINABLE INCOME FUND Key Information

Top 10 Holdings

%

Fund Size:

£21.44M

1

CITY OF LONDON INV

5.13

Sector:

IA UK Equity Income

2

NATIONAL GRID PLC

4.29

Launch Date:

2-May-06

3

PHOENIX GROUP HOLDINGS PLC

4.15

Managers:

Mark Elliott

4

STRIX GROUP PLC

4.02

Number of Holdings:

30-50

5

GLAXOSMITHKLINE PLC

4.00

Payment Dates:

Quarterly

6

GREENCOAT UK WIND PLC

3.65

7

ASSURA PLC SHS REIT

3.64

8

PRUDENTIAL PLC

3.63

9

TYMAN PLC

3.57

Cumulative Performance (%)

10 LANCASHIRE HOLDINGS

3.56

Fund Commentary The CFP Castlefield B.E.S.T Sustainable Income Fund returned +5.03% for the quarter, compared to the sector, which returned +6.75%.

A - IA UK Equity Income [25.92%] B - CFP Castlefield B.E.S.T Sustainable Income General [8.54%] 1 Mth

3Mths

6 Mths

1 Yr

3 Yrs

Fund

4.25

5.03

10.96

20.82

5.02

8.54

Sector

4.79

6.75

23.44

32.62

9.03

25.90

3

3

4

4

3

4

Quartile

5 Yrs

Discrete Performance (%) Fund Sector

2021 YTD 5.03

2020 -12.38

2019 21.67

2018 -11.93

2017 3.91

6.75

-10.73

20.07

-10.54

11.32

3

3

2

3

4

Quartile

Discrete Year to Quarter End Performance (%)

Fund

Q1 2020 Q1 2021

Q1 2019 Q1 2020

Q1 2018 Q1 2019

Q1 2017 Q1 2018

Q1 2016 Q1 2017

20.82

-12.87

-0.23

-3.53

7.14

Source: 31/03/2016 - 31/03/2021. Data from FE 2021 Past performance is not a guide to future performance

Sector Allocation Financials 25.58% Industrials 10.84% Support Services 8.96% Technology 8.71% Renewable Energy 8.29% Health Care 7.16% Consumer Services 6.58% Utilities 6.45% Consumer Goods 5.68% Infrastructure 5.68% Real Estate Investment Trusts 3.64% Telecommunications 1.41% Cash 1.02%

20

Equity markets continued to respond positively to the rapid roll-out across the UK of the vaccines to prevent Covid-19. Although only announced last November in a series of public statements from separate teams working on a viable vaccine, the past quarter has seen a substantial number of doses delivered. This has provided the basis for further gains for industries or market sectors most adversely affected by the pandemic. The best performing holdings within the portfolio have been those in the travel and leisure industry such as Cineworld, up over 50%, or holdings within the financial sector itself and which have benefited from the equity market recovery. This has included specialist fund manager City of London Investment Group, up over 20% or life assuror Aviva, up 25%. Conversely, our exposure to sectors such as healthcare or software which had held up better earlier in the pandemic slipped back as investors favoured stocks geared toward the recovery. Within the portfolio, we continued to find good value in several existing investee companies, adding to Devro and Begbies Traynor. Devro updated the market in early March with full-year results for 2020. The manufacturer of collagen casings for the global food industry reported good growth in sales to emerging markets and also a sharp increase in free cash-flow as it comes to the end of a period of rationalisation of its manufacturing sites. The increased operating efficiency and successes in marketing to new regions allowed them to reinstate their dividend which had been paused during 2020 and we added to our holding later in March. Also in March, we took part in a placing of shares by Begbies Traynor, the AIM-listed insolvency and business advisory practice. The placing was to fund an acquisition of a London-based insolvency practice. The group has been successful with similar bolt-on acquisitions in the past, increasing scale in its core operations and adding related services in the field of property insolvency. It has also grown revenues annually for many years despite a relatively benign insolvency market as it consolidates its sector. The recent placing was to fund a £24m acquisition of an insolvency practice in London, with the group taking a prudent approach to funding deals, it has a low level of debt and a growing dividend. Source: Castlefield, LSE, Factset


27 Ap r 2021

FUND COMMENTARY CFP CASTLEFIELD B.E.S.T SUSTAINABLE UK OPPORTUNITIES FUND Key Information

Top 10 Holdings

%

Fund Size:

£27.56M

1

RWS HOLDINGS PLC

4.91

Sector:

IA UK All Companies

2

K3 CAPITAL GROUP PLC

4.86

Launch Date:

1-Jun-07

3

TYMAN PLC

4.40

Managers:

Mark Elliott

4

HIKMA PHARMACEUTICALS

4.25

Number of Holdings:

30-40

5

RELX PLC

4.25

Payment Dates:

Quarterly

6

IMPAX ASSET MANAGEMENT GROUP PLC

4.14

7

CRODA INTERNATIONAL PLC

3.93

8

EXPERIAN PLC

3.81

9

CITY OF LONDON INV

3.78

Cumulative Performance (%)

10 PRUDENTIAL PLC

3.76

Fund Commentary The CFP Castlefield B.E.S.T Sustainable UK Opportunities Fund returned +5.89% for the quarter, versus a return for the IA UK All Companies sector of +5.83%.

A - IA UK All Companies [38.91%] B - CFP Castlefield B.E.S.T Sustainable UK Opportunites General [34.48%] 1 Mth

3Mths

6 Mths

1 Yr

3 Yrs

5 Yrs

Fund

5.02

5.89

17.32

33.67

16.67

34.48

Sector

3.77

5.83

22.04

37.99

14.73

38.91

1

2

3

3

2

3

Quartile

Discrete Performance (%) Fund Sector

2021 YTD 5.89

2020 -5.53

2019 17.07

2018 -0.80

2017 9.79

5.83

-6.01

22.24

-11.19

13.99

2

2

4

1

4

Quartile

Discrete Year to Quarter End Performance (%)

Fund

Q1 2020 Q1 2021

Q1 2019 Q1 2020

Q1 2018 Q1 2019

Q1 2017 Q1 2018

Q1 2016 Q1 2017

33.67

-17.22

5.45

6.11

8.63

Source: 31/03/2016 - 31/03/2021. Data from FE 2021 Past performance is not a guide to future performance

Sector Allocation Financials 19.56% Industrials 17.20% Consumer Goods 12.66% Healthcare 10.02% Support Services 8.65% Consumer services 7.89% Technology 7.00% Chemicals 6.31% Media 4.25% Telecommunications 3.11% Real Estate Investment Trusts 2.43% Cash 0.92%

Notable positive contributors to performance included leading business recovery practice Begbies Traynor Group (+26.9%) and specialist food processor Devro (+25.8%). During the period, the former carried out two of its largest acquisitions to date, in CVR Global LLP and David Rubin & Partners. We believe these to be transformational for the Group as it materially increases its scale and market share, especially in the key London market. Funded by a placing that raised £22m, and which the Fund participated in, the balance sheet also remains in excellent shape to supplement organic growth with further value-accretive acquisitions. Devro, which supplies collagen casings for meat products, announced figures showing a resilient performance in 2020. Despite the challenges of the pandemic, the company benefitted from its geographical diversity and, in particular, strong growth in emerging markets. During the period we initiated positions in two new holdings. Firstly, was Zotefoams, a specialist polymer foam manufacturer which provides its products to a global client-base across the fields of transport, leisure and packaging. Uses are typically confined to applications where the very lightweight foams can confer significant energy savings, e.g. when used in aircraft interiors, or improved protection of highly fragile components in transit when used in packaging. The group has recently completed a capex programme to increase capacity which should provide a platform for higher margins and cash flow in the coming years. The second new holding was in Intertek, a leading Total Quality Assurance provider to industries worldwide. Through its network of more than 1,000 laboratories and offices, and over 40,000 people in more than 100 countries, Intertek offers services from auditing and inspection to training, advisory, quality assurance and certification for customer operations and supply chains. In doing so, it serves a wide range of customers spanning almost all sectors of the economy, from ensuring food safety requirements are met to textiles and apparel inspection. The industry is one which is supported by good fundamentals and secular trends, with demand for products and services directly related to ESG and sustainability issues such as improved quality, safety and efficiency. Intertek itself has a good track record of delivering decent revenue growth at healthy levels of return, which we believe can continue. We also like that it has such a diverse end-customer base, meaning not all are exposed to the same growth drivers. Overall, we think owning a business with such characteristics should lead to superior risk-adjusted returns over the long term and have therefore taken a position. Source: Castlefield, LSE, Factset 21


S u s t a i n a b le Fu nds Qua rte rly

FUND COMMENTARY CASTLEFIELD B.E.S.T SUSTAINABLE UK SMALLER COMPANIES FUND Key Information

Top 10 Holdings

%

Fund Size:

£20.40M

1

INSPIRATION HEALTHCARE GROUP PLC

4.97

Sector:

IA UK Small Companies

2

EKF DIAGNOSTICS HOLDINGS PLC

4.04

Launch Date:

1-Jun-07

3

ALUMASC GROUP PLC

3.87

Managers:

David Elton

4

MACFARLANE GROUP PLC

3.81

Number of Holdings:

35-40

5

TRISTEL P.L.C.

3.70

Payment Dates:

Semi-annual

6

THE GYM GROUP PLC

3.62

7

TRACSIS PLC

3.56

8

GRESHAM HOUSE PLC

3.47

9

ANPARIO PLC

3.41

10 STRIX GROUP PLC

3.36

Cumulative Performance (%)

Fund Commentary The Fund registered a total return of +12.8%, compared to the sector, which returned +9.0% over the same period. Of encouragement for the Fund was the news flow supporting this relative outperformance; it has seen several upgrades to market revenue and profit expectations of investee companies year-to-date, translating into strong share price performance. A - CFP Castlefield B.E.S.T Sustainable UK Smaller Company General Income [84.94%] B - IA UK Smaller Companies [80.75%] 1 Mth

3Mths

6 Mths

1 Yr

3 Yrs

5 Yrs

Fund

3.35

12.78

28.85

55.69

33.65

84.94

Sector

4.29

9.03

32.40

65.72

32.60

80.75

3

1

3

3

2

2

Quartile

Discrete Performance (%) Fund Sector

2021 YTD 12.78

2020 2.49

2019 25.46

2018 -13.84

2017 30.62

9.03

6.48

25.34

-11.70

27.18

1

3

3

3

2

Quartile

Discrete Year to Quarter End Performance (%)

Fund

Q1 2020 Q1 2021

Q1 2019 Q1 2020

Q1 2018 Q1 2019

Q1 2017 Q1 2018

Q1 2016 Q1 2017

55.69

-10.74

-3.83

14.62

20.73

Source: 31/03/2016 - 31/03/2021. Data from FE 2021 Past performance is not a guide to future performance

Sector Allocation Industrials 25.00% Health Care 22.17% Technology 15.78% Financials 12.64% Support Services 6.68% Consumer Services 4.46% Cash 3.98% Chemicals 3.58% Consumer Goods 3.49% Utilities 2.22%

The highest three contributors were Inspiration Healthcare (+52.8%), Alumasc Group (+53.3%), and Tristel (+21.4%). Neonatal medical device company Inspiration continued to deliver positive news. It announced that, as a result of strong momentum since publishing its half year results, Group revenues and earnings for the full year will exceed current market expectations. The company subsequently received further regulatory approvals for its products (this time in Japan), and some initial orders as a consequence, as well as signing a new three-year distribution agreement with a key partner. Shares in Alumasc – the sustainable building products, systems and solutions group – reacted to news of optimistic trading and strong performance for the half year. The period saw revenues +11% year-on-year and a record first half profit, at more than a 100% increase in underlying pre-tax profit. All divisions contributed to this performance and it was supported by good cash generation which saw net debt reduce materially. Pleasingly, this also reflects management’s successful restructuring and execution of a strategy launched in 2019. Manufacturer of infection prevention and contamination control products Tristel also showed good growth in its first half. Sales were at the top end of management’s target range at +15%, and the company continued to increase the proportion of revenue from overseas markets, taking it to 60%. Margins also improved, while progress continued to be made in its USA regulatory efforts. The three main detractors to performance were Mattioli Woods (-9.6%), Keywords Studios (-10.0%), and GB Group (-9.6%), each of which drifted in share price terms somewhat, despite announcing decent news during the period. We carried out one new purchase and one exit during the period. The purchase was in chemicals company Zotefoams, the world’s largest manufacturer of lightweight cross-linked polyolefin block foams. Its products benefit from the trends towards resource efficiency and higher regulatory compliance standards whilst uses are wide ranging, from pharmaceutical and personal care to automotive and industrial. The company has spent the last few years investing in the expansion of its capacity which presents scope for it to significantly grow sales without much further capital. Having been followers of Zotefoams for some time, we believe now to be an opportune time to initiate a position. Most recently, we exited a small position in stockbroker Arden Partners, given the challenges facing the industry. Source: Castlefield, LSE, Factset

22


S u s t a i n a b le Fu nds Qua rte rly

MEET THE TEAM

Amelia Overd

Alison Newall

MA (Hons), IMC, ACSI

Chartered MCSI

Senior Executive, Investment Management

Associate, Investment Management

Daniel Lonsdale

David Elton

BSC (Hons), IMC, ACSI

BSc (Hons), IMC, Chartered MCSI, CFA

Manager, Investment Management

Partner, Investment Management

David Gorman

John Eckersley

MA (Hons), MBA, Chartered MCSI

BA (Hons), MBA, Chartered FCSI, Chartered Wealth Manager

Partner, Investment Management

Managing Partner

Ita McMahon

Mark Elliott

BA (Hons), MA, IMC

Mchem (Hons), Chartered MCSI, CFA

Associate, Investment Management

Partner, Head of Investment Management

Mike Heron

Rory Hammerson

Chartered MCSI

MA (Hons), CEFA

Executive, Investment Management

Partner, Investment Management

Simon Holman

Barney Timson

MA (Hons), MSc, CFA, Chartered MCSI, ASIP Partner, Investment Management

Executive, Investment Management

India Harkishin Executive, Investment Management

23


C A S T L E F I E L D 8 th floor, 111 Piccadilly Manchester M1 2HY 0161 233 4551 Castlefield.com

Castlefield is a trading name of Castlefield Investment Partners LLP (CIP) and a registered trade mark and the property of Castlefield Partners Limited. CIP is authorised and regulated by the Financial Conduct. Registered in England & Wales No. OC302833. Registered Office 8th Floor, 111 Piccadilly, M1 2HY. Part of the Castlefield employee-owned group. Member of the Employee Ownership Association. Opinions constitute our judgement as of this date and are subject to change without warning. The officers and employees of Castlefield Investment Partners LLP, may have positions in any securities mentioned herein. This document shall be governed by and construed in accordance with the law of England and Wales and is subject to the exclusive jurisdiction of the English Courts. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment. Past performance is not necessarily a guide to future performance. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it, to go up or down. In the case of some investments, you should be aware that there is no recognised market for them, and that it may therefore be difficult for you to deal in them or for you to obtain reliable Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. The information in this document is not intended as an offer or solicitation to buy or sell securities or any other investment or banking product, nor does it constitute a personal recommendation.

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Profile for Castlefield Partners

Castlefield Sustainable Funds Quarterly Q1 2021  

Castlefield Sustainable Funds Quarterly Q1 2021  

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