Royal London Asset Management's Head of Equities, Peter Rutter, and Head of Responsible Investment, Ashley Hamilton Claxton, discuss their equity market capabilities - and approach to responsible investment
Are you positive about the global economic outlook for 2024 – and how will this likely impact the equities market?
Peter Rutter: We enter 2024 with the usual mixture of geopolitical, societal, and macroeconomic uncertainties. The specifics of the list change from year to year and in 2024 key items that will create volatility and change in markets likely include the US election cycle, China-US relationships, war in the Middle East and Ukraine, incremental activity in the fight against climate change and technological shifts, with the impacts of AI likely increasing in society and the economy.
At an aggregate level, we believe the long-term outlook for equities remains attractive with our global equity team's estimate of the likely return from a diversified basket of global equities being Inflation + 4%.
This is reasonable as a return in an absolute and historical sense, but it is noteworthy that for the first time in over a decade, cash and fixed income yields are much closer to the implied earnings yield of global equities. This could put some pressure on equity markets advancing well ahead of other asset classes in 2024, even if the long-term expected real return remains reasonable.
What equity market capabilities can Royal London Asset Management offer insurance investors?
PR: We view our global equity investment approach very much as a solutions capability and we are continually listening to the changing demands and needs of our clients. This involves continually looking for ways to enhance systems, tools and knowledge.
We believe an investment approach which combines the rigid processing power of computers, with the flexible insights of humans, is an effective route to exploiting market inefficiencies to deliver sustainable alpha for our clients.
This agenda ultimately drives future strategy creation as our learnings and enhancements develop and iterate.
Real examples as to how this virtuous circle has worked in practice include our portfolio construction/risk enhancements, which have furthered our thinking around enhanced indexation outcomes for the most moderate risk/return budgets as an alternative to the traditional passive/smart beta approaches.
What is your philosophy and approach to responsible investment?
Ashley Hamilton Claxton: As part of a mutual group, responsible investment is a natural fit and a key element in delivering our group purpose – protecting today, investing in tomorrow.
Benefitting from the stability of being part of the UK's largest life, pensions and investment mutual, we can take a longer-term view, ensuring we are well placed to invest responsibly and champion positive, enduring change.
For our investment teams, being a responsible investor means integrating the environmental, social and governance factors into active investment decisions. Responsible investment and stewardship can mean different things to different investors. That's why we emphasise transparency – talking with our clients to ensure we understand their priorities and they know what our approach is delivering.
We believe that effective responsible investment helps society and produces better results for our investors. We recognise the opportunities in this area: that's why we will continue to evolve our approach, investing in our people and infrastructure as we play our part in moving fairly to a sustainable world.
What achievements in responsible investment can Royal London Asset Management highlight from recent years?
AHC: A great example of this is our ongoing engagement with CLP, which we hold across our Global Equity range. CLP is one of several utility companies that we have engaged with on a just transition. For a number of years, we have been advocating for a 'just transition' which asks companies and governments to consider the social implications of moving to a low-carbon economy.
Focusing purely on coal demand in Asia where it is most significant and growing, we met CLP Holdings, an energy utility based in Hong Kong, twice in 2022. We were pleased to hear that the company did not see any significant barriers to decarbonisation in Hong Kong, India, China, or Australia.
The company has coal-fired plants in all these geographies. The company also does not believe divestment is the correct approach to delivering its climate targets and that a just transition is an important concept to integrate.
This year, CLP has published its asset-by-asset coal phase-out plan. The company has published a just transition case study of its Yallourn Coal plant in Australia, describing how it is engaging with the community and workers and investing to repurpose the coal plant site for energy storage. The company acknowledged how our engagement and investor feedback contributed to CLP Holdings' decision to enhance disclosures.
Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested.
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This is a financial promotion and is not investment advice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.
Issued in February 2024 by Royal London Asset Management Limited, 80 Fenchurch Street, London, EC3M 4BY. Authorised and regulated by the Financial Conduct Authority, firm reference number 141665. A subsidiary of The Royal London Mutual Insurance Society Limited.
