On 16 March 2017, Triodos Investment Management announced its plans to bring the investment management of Triodos SICAV I in-house and to apply full integrated analysis and further strengthen its engagement activities with the aim to maximise positive change. As a result, the investment management services currently provided by Delta Lloyd Asset Management will be phased out starting in the second quarter of 2018.
The fund saw a further increase in the inflow of capital from investors. Triodos SICAV I expects this growth to continue in 2018. In 2018 the fund has the intention to be distributed in Spain. Furthermore, the number of distributors in the countries where Triodos Bank is active has grown and is expected to increase further in 2018.
Triodos SICAV I distinguishes itself from other funds through its responsible shareholder policies and strict investment principles. In 2018, the fund will again review several minimum standards, following up on developments in the field of sustainability, within companies and within society at large. Standards regarding the following issue is scheduled to be reviewed:
Water scarcity: the minimum standards of the fund have covered fresh water scarcity since 2014 and require companies with water-intensive production processes to actively show awareness of the issue through their policies and programmes. Companies have since been stepping up their efforts to reduce water use and preserve fresh water resources. Therefore, in 2018, the fund will investigate whether the requirements can be strengthened.
Market developments and sub-funds
During the year 2017, the world economy grew at a rate of 3.7% on average. Economic growth is expected to continue to exceed the historic average of 3.6% in the quarters ahead. During the past year, the growth data for various regions have become more synchronised, while global fiscal policies appear to be becoming more accommodative on a worldwide scale. Monetary policies tend towards being more restrictive, inspired particularly by the high economic growth rate and high utilisation rates for production factors. Because core inflation is expected to stay behind central bank targets, monetary policies will be modified only very gradually. An increase in productivity growth should contribute to slightly higher real GDP growth than in recent years. The growth momentum is expected to be maintained in the months ahead.
Fixed income markets
The tighter US labour market will eventually translate into stronger wage growth and higher inflation. The inflationary effect of stronger wage growth may, however, be limited by a stronger-than-expected recovery of productivity growth. In the eurozone we currently do not expect the ECB to convincingly reach its inflation target of around 2% in the year ahead. Furthermore, we currently assume that the Federal Reserve will raise interest rates three to four times in 2018. This number may not be reached if the inflation figures continue to disappoint. The ECB is expected to gradually reduce its bond purchase programme to zero between September and December 2018. Although the ECB has indicated that it will do this gradually, the question is when this will start to effect credit markets. Valuations are high and credit risk premiums are currently at very low levels and do not offer compensation for any unexpected setbacks. The tapering of purchase programmes by the Federal Reserve and ECB may result in lower demand - and lower prices - for bonds. Sovereign bond yields are expected to register a sometimes-volatile rise, because the markets will continue to focus on a normalisation of monetary policies. Triodos Sustainable Bond Fund and Triodos Sustainable Mixed Fund will therefore continue to pursue a selective investment policy.
The equity markets staged strong performances in the past six months, aided by surprisingly strong earnings growth. We remain constructive about risky assets, of which equities and cyclical stocks in particular remain our favourite asset categories for now. Macro-data are strong and we are likely to see earnings growth in 2018. Valuations may be high, but are not excessive given the current phase of the earnings cycle. The sub-funds’ positioning emphasises companies that offer autonomous and profitable long-term growth. These growth characteristics are found especially in the Information Technology, Cyclical Consumer Goods and Healthcare sectors. This forms the basis for the Triodos Sustainable Equity Fund, Triodos Sustainable Mixed Fund and Triodos Sustainable Pioneer Fund’s overweight position in medical technology stocks and important players in the areas such as wind energy, water purification, energy efficiency and electric transport.