Following a 2024 performance that was boosted by a good final quarter, the managers look ahead with confidence for the Fund’s holdings. Money transfer specialist Wise was a top Q4 performer after the fund managers topped up the position during a share price dip earlier in the year. Very attractive valuations underpin an exciting outlook for UK small companies.
Peter: The UK Ethical Fund had a strong final quarter, delivering returns of 2.2% and outperforming the MSCI UK benchmark by 2.4%. The calendar year of 2024 was positive too. Returns were 7.5%, that's ahead of the benchmark by 0.6%. Over the quarter, WISE, Trainline and Trustpilot were key contributors to returns, while Genuit and Kingspan detracted. Genuit is a 2.3% holding in the UK Ethical Fund. It manufactures and distributes products for the control of water and air in buildings. These are key challenges in making our built environment more sustainable. For instance, their storm water management products slow down water flows during storms, improving the ability of our wastewater systems. In addition, as our homes move to electric from gas heating, so there will be more demand for their underfloor heating systems. We believe its prospects are strong as demand for these products recovers. That said, it was pleasing to see the returns being led by Wise. This is an investment we've had since early 2022. It had fallen mid-year. and we used this as an opportunity to add to our position. WISE, which used to be called TransferWise, is aligned with our theme of 'Transparency in Financial Markets' and it's seen strong growth as a result of its efficient platform for foreign exchange transactions. Traditional conversion between currencies has always been slow, opaque, and costly. Wise makes it rapid, transparent, and low cost. Indeed, as they grow, so the transaction costs come down and we were really pleased to see them signing new deals with NuBank in Brazil, Standard Chartered, and Morgan Stanley.
Martyn [00:02:26] Trainline, the UK's leading online train ticketing platform performed well over 2024 with shares up 38%. The company posted another year of strong revenue growth driven by e-ticket penetration in the UK and liberalisation of key European rail lines in Italy and Spain. Trainline's international growth strategy is starting to bear fruit with strong user engagement and repeat use and increasingly recognised brands. The company also showed strong cost discipline, with growing profit margins and strong cash generation. The management has signaled their confidence in the future prospects of the business by launching a share repurchase programme, taking advantage of the disconnect between the intrinsic value of the business and the share price today, and increasing our share of future cash flows.
Peter [00:03:21] Regarding transactions within the UK portfolio in the quarter, we started a new position in Berkeley Homes. This is linked to our theme around 'Building Better Cities'. Berkeley have a very strong track record of delivering high quality housing in areas of urban regeneration. They operate in London and the South East where the shortage of quality housing is most acute. Importantly 93% of the homes they sell have had A or B energy efficiency ratings. And remember that the average for the UK housing stock is a lowly D rating. With the UK government working to increase the supply of housing, we believe Berkeley Group should see strong long-term returns from here.
Martyn [00:04:13] If we look to the future, we remain hugely optimistic about returns for our Sustainable Future investment process, and particularly those small UK companies trading on very attractive valuations. We see no sign of scientific progress slowing, and governments and businesses remain committed to delivering a more sustainable and prosperous economy. Companies leading the way in healthcare innovation, cybersecurity and energy efficiency for example, will continue to grow, delivering both tangible benefits to society and strong financial returns for our clients.
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.
- All investments will be expected to conform to our social and environmental criteria.
- Overseas investments 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 the Fund.
- The Fund 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.
- Outside of normal conditions, the Fund 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.
- Counterparty Risk: any derivative contract, including FX hedging, may be at risk if the counterparty fails.
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