The Sustainable Future strategies have existed for 24 years. They have always aimed to deliver strong returns by backing sustainable companies. We write regularly about those investment returns and how over the longer term we have shown that this strategy is a credible approach to active management.
However, in this series of articles we want to focus on the other vitally important aspect of sustainable investment: how it helps improve our world. Our existing economies remain far from perfect; but they can change to become much more sustainable. Sustainable investing plays an important part in accelerating this change. Here, in the second of six articles, we examine how it can improve health and quality of life.
As populations get older, they place more demands on the healthcare system. Demographics are changing right across the globe, with a bigger proportion of the population being older and needing treatment and care.
We look to invest in companies providing solutions which result in better outcomes for patients and also look for ways that can reduce the burden on health services. We believe sustainable investment plays an important role in finding and backing the innovators in healthcare which are undertaking research & development that leads to genuine breakthrough treatments, early diagnosis, as well as making it easier to live a healthy lifestyle. We see three broad areas to invest in that can achieve this:
Screening and catching disease early
The sooner you detect a disease, the better the chances of successfully treating it. We are interested in cost-effective screening that is accurate as this improves our health. This includes companies such as Roche, which has 25% of the business exposed to precisely this, as well as Agilent, which has 20% exposed to detecting disease.
Innovation in healthcare
Facilitating the move to more effective but larger complex molecules in medicines
A big shift is underway from using small molecules towards larger more effective molecules called biologics drugs to treat disease. These more effective but more complex treatments require sophisticated drug delivery systems that are highly regulated. We believe this area will continue to experience long-term growth as demand for biologics drug delivery systems continues through the next decade and beyond. West Pharma is a company exposed to this theme which we have written about previously.
Improved ways to treat disease or address healthcare challenges
Innovation that greatly improves patient outcomes and also reduces the burden on healthcare services are clearly appealing to us as investors. Examples include:
- Edwards LifeSciences specialises in making heart valve replacements that can be installed in the patient through keyhole surgery, resulting in much less complex procedures (that don’t require open heart surgery) and much shorter stays in hospital. We have written about this innovative company before.
- Intuitive Surgical make robots that assist surgeons to enable them to be more productive and more effective. This kind of innovation directly addresses backlogs in many types of surgery (read more about this innovator in robotic surgery).
- Other areas we like and have invested in include technology which improves drug trials or helps improve compliance (people taking the medicine when they are supposed to) as well as telemedicine as a way of remotely administering prescriptions for some patients.
Potential revolution in treatments from better understanding of genetics
The rapid fall in cost of gene sequencing has allowed us to better understand the genetic component of disease (not all disease is genetic but many have a genetic component). This has enabled huge innovation in how we identify and successfully treat disease using this information. For example, it was critical in finding and developing a successful new vaccine to treat Covid-19 in less than a year during the pandemic. We discuss this and examples of companies exposed to this theme in this insight. We believe this increased understanding of biology will potentially revolutionise the healthcare system to cure diseases that have had no cure to date.
Encouraging healthier lifestyles
Health is intrinsically linked to the food we eat and the lifestyles we lead. We are wary of investing in companies that are part of the problem in perpetuating the current unsustainable food system both in terms of the environmental costs of unsympathetic industrial farming as well as the provision of unhealthy food which is detrimental to our health.
The benefits of taking regular exercise are well understood and we like companies that make it easier for us to exercise. For example, this includes low-cost gyms, such as Gym Group, whose gyms and exercise classes have lowered one of the biggest barriers to exercise for a large part of the population: cost.
What investors say to companies is important. Encouraging and supporting management to be progressive and stick to their strategy helps deliver on the positive outcomes. For example, twenty years ago we joined the “Access to Medicines” initiative that encourages companies to take a long-term view on their strategy to sell reduced cost medicines to countries less able to afford them rather than the initial stance of taking these countries to court in the early 2000s. This has obvious benefits for society as well as providing new revenue streams that are still profitable and form an increasingly significant part of many innovative healthcare companies that the Sustainable Future Funds are invested in.
We believe that sustainable investment has an important role to play by finding and backing these innovative businesses which are providing better solutions to improve our health, which will experience long-term structural demand for their products as a result. We also believe this innovation to tackle the big challenges in improving our health gives these businesses a competitive advantage over their more myopic peers.
Key Risks
Past performance does not predict future returns. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments
The Funds managed by the Sustainable Future Team:
- Are expected to conform to our social and environmental criteria.
- May hold overseas investments that may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of a Fund.
- May invest in smaller companies and may invest a small proportion (less than 10%) of the Fund in unlisted securities. There may be liquidity constraints in these securities from time to time, i.e. in certain circumstances, the fund may not be able to sell a position for full value or at all in the short term. This may affect performance and could cause the fund to defer or suspend redemptions of its shares. May invest in companies listed on the Alternative Investment Market (AIM) which is primarily for emerging or smaller companies. The rules are less demanding than those of the official List of the London Stock Exchange and therefore companies listed on AIM may carry a greater risk than a company with a full listing.
- May encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings.
- May invest in companies predominantly in a single country which maybe subject to greater political, social and economic risks which could result in greater volatility than investments in more broadly diversified funds.
- Outside of normal conditions, may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash.
The risks detailed above are reflective of the full range of Funds managed by the Sustainable Future Team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.
The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
Disclaimer
This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.
It should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets.
This information and analysis is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID) and/or PRIIP/KID, which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.
