RATHBONE ETHICAL BOND FUND: A ‘Glorified Lender’ Helping Revive the Rainforest
Fund manager Bryn Jones describes himself as a ‘glorified financier’ – but ‘without access to a baseball bat if people don’t pay up’.
All ironic of course, but in layman’s terms it pretty much explains how he makes money for investors with the investment fund he manages: Rathbone Ethical Bond.
“What we do as bond fund managers is lend money to large companies and governments around the world,” he explains. “In return, they pay us interest every year until their bonds mature.
“If we have picked good quality bonds, especially on the corporate side, hopefully we will get our money back. We are happy and so are our fund investors.
‘The trick – and it’s a crucial one – is to avoid bonds from companies that may be in danger of getting into trouble, such as Thames Water.’
He adds: ‘The aim of our fund is simple: to offer our investors a little more than they would get with cash – and to offer something that acts as a form of insurance policy in their investment portfolio when the stock markets fall.’
It’s a diversification proposition that has attracted money from asset managers, networks of financial advisors and private investors. The fund has assets of £2 billion and holds 217 bonds from 24 companies.
While wary of inflationary pressures that could be caused by a combination of Labour’s budget attack on British companies and Donald Trump’s threat to impose tariffs on US imports, Jones believes bond markets are currently in “full swing”. opportunities’.
He says bond yields of between five and six percent are “attractive” at the moment – especially if interest rates fall steadily as expected, pushing bond prices up.
“If inflation were to approach seven percent in the coming years,” he adds, “investors would obviously be wiser to buy gold or short-term indexed government bonds.”
The portfolio includes a plethora of bonds offered by major corporate brands such as Aviva, HSBC and Santander. However, the largest interest is in British government bonds – or more specifically in ‘green government bonds’. A specialized department at Rathbones – Greenbank – ensures that all bonds in the fund meet strict social and environmental criteria.
“We can only buy UK government bonds where the proceeds are used to improve the country’s environment or infrastructure,” says Jones. “We cannot buy government bonds used to finance nuclear power plants or buy weapons.”
In line with its ethical investment approach, Rathbone Ethical Bond invests in the World Bank’s Amazon Reforestation-Linked Outcome Bond, which provides financing to help reforest Brazil’s Amazon rainforest.
It also has interests in bonds that help finance the development of wind and solar farms. This includes a share in a bond issued by the Burnham and Weston community company to finance a local solar farm. “These bonds are not a large part of the fund’s portfolio,” says Jones, “but they do provide good returns.”
In terms of investment gains, Rathbone Ethical Bond has achieved a total return of 9.5 percent over the past year and 38 percent over the past ten years. It has outperformed the average return of its UK bond peer group over the past one, three, five and 10 years.
Like all bond funds, it saw a wobble in the fall of 2022, when bond prices fell sharply in response to unfunded tax cuts announced by then-Chancellor Kwasi Kwarteng. The annual costs are reasonable at 0.67 percent.
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