Why recommend this fund to your clients?

• The Fund concentrates on companies making a positive impact on society.
• Sustainable companies typically have better growth prospects due to demand for their products and services.
• The Fund has a strong overseas element giving exposure to global leaders in sustainability.
• The multi-asset approach allows the Fund Manager significant flexibility to respond to changing market and economic conditions.

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Performance of £1000 invested since Launch

Value to latest month end, total return, bid to bid price, Net income reinvested. Source: Lipper. Past performance is not a guide to future performance and the value of this investment can go down as well as up. This is not a guaranteed investment and you may get back less than you have put in.

Cumulative performance (% change to 30/09/2011)

	1 year	3 years	5 years	Since launch (21/09/09)
Fund	0.1	-	-	12.2
Sector Median	-3.6	-	-	5.5
Quartile Ranking	1st	-	-	1st

Percentage Growth to latest month end, total return, bid to bid price, Net income re-invested.

Single year performance (% change 30/09/2011)

	30/09/06 - 30/09/07	30/09/07 - 30/09/08	30/09/08 - 30/09/09	30/09/09 - 30/09/10	30/09/10 - 30/09/11
Fund	2.4	-	-	10.9	0.1
Sector median	-	-	-	8.9	-3.6

Percentage Growth for discrete 1 year periods, bid to bid price, Net income re-invested.

 

A closer look at the Fund

What is the Fund's aim?

The aim of the Trust is to take the principle of sustainability and apply it across different geographies and asset classes. We define sustainable investing as investing in companies that have a net positive benefit to society either through the products and services they offer or in the way they conduct their business. In doing this we support the tackling of major issues such as infrastructure, health care and climate change.

Financially the aim is to provide a hurdle rate of return in the region of 6-8% per annum over the medium-term. Given the nature of the underlying assets in the Fund this will not be a smoothed return.

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What does the Fund invest in?

The Fund invests in themes associated with sustainable investing. These evolve over time and currently include health care, technology, infrastructure, the social and economic development of emerging markets, urban regeneration and climate change. Within these themes the Trust will primarily invest in the equity of relevant companies but will also take some exposure to their debt. The decision on equity or debt will be driven by the potential for total return although the Trust will likely retain an equity bias. Within the fixed interest we will invest in corporate and sovereign debt, again, dependent on total return potential.

Who it's suited to

The Fund may be suitable for:

• investors wanting their money to be invested in a fund that seeks to improve society
• those investors willing to take a medium to long-term investment horizon
• those investors who wish to gain overseas exposure whilst retaining a degree of investment in the UK.

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Investment philosophy

Our investment philosophy and style is best described as follows:

• Focused - We will allocate capital to our best ideas as opposed to taking an index orientated approach.
• Long-term - Our portfolio turnover levels will be significantly lower than the industry average.
• Valuation driven - We think a business is worth its future cashflows discounted back at an appropriate rate.
• Responsible - We integrate environmental, social and governance issues into all our investment decisions.

At the security level our investment approach is structured to consider companies at three levels to identify mis-priced opportunities.

• Investment Themes - the increasingly short-term nature of the investment industry, evidenced by declining stock-holding periods, results in long-term opportunities being overlooked. We have therefore adopted a long-term investment philosophy and evaluate the effect of long-term investment themes. Examples include emerging market growth opportunities, demographic influences over supply and demand factors, and the environmental impact of human activity.
• Industry trends - The increasingly narrow focus of most investors has resulted in us broadening the scope of inputs beyond traditional investment research to identify wider industry trends or linkages between industries.
• Company specific - We believe that the market inefficiently discounts company specific events such as management change. Therefore we devote a large amount of analytical resource to changing company situations.

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Sector allocation 30/09/11

Credit rating breakdown 30/09/11

Credit rating	% of fund
FTSE 100	30.4
FTSE 250	4.6
Overseas Equities	41.5
UK Corporate Bonds	11.5
Overseas Corp Bonds	9.1
Cash	2.9

Top 10 holdings 30/09/11

	% of Fund
Apple Inc	3.6
Johnson & Johnson	3.1
Microsoft Corp	3.0
Yorkshire Building Society 4.75% Nts 2018	2.8
Australia & New Zealand Bank 6.54% Uts £ Perp Nts &1 Liq Prf	2.7
Wells Fargo & Co	2.7
BG Group	2.6
Amazon.com Inc	2.6
Google Inc	2.6
Abbey National Treasury Services 5.75% Mtn 2026	2.5

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Holdings examples

Johnson and Johnson

Johnson and Johnson is a world leading healthcare company which develops products involved in the treatment of a wide range of medical conditions. As demographic trends in Western economies are towards an ageing population, demand for healthcare products is likely to rise considerably.

Wells Fargo

Wells Fargo is a leading US retail and commercial bank. The responsible provision of financial services, such as mortgages and savings products, has a significant social benefit. Wells Fargo avoided many controversies during the financial crisis due to better lending practices and a more responsible approach.

BG

British Gas (BG) is a leading gas producer and an industry leader in environmental management. Gas is a lower carbon energy source than coal and it has an important role to play as a cleaner fuel until renewable energy sources can be developed in a significant way.

Fund Manager strategy and outlook

Over the last three months global equity markets have continued to rise. Considering the background has featured social disruption in many North African and Middle East economies, leading to a significant spike in the price of oil, and a devastating earthquake in Japan, this should be considered an impressive performance. Global economic data and corporate cash generation continues to be a key component of equity market strength. Given ongoing valuation support and generally low interest rates we would expect further upside to equities, especially when compared to fixed interest markets.

During the last three months the Trust underperformed the median of the peer group and was ranked in the fourth quartile. The biggest negative attribution came from weakness in the US dollar versus sterling. The Trust has a number of overseas holdings, the value of which has been reduced by this weakness. Negative attribution was also seen from the technology sector, where Cisco issued a disappointing trading update. The position in Cisco was subsequently sold. Positive attribution was seen from CSX, a US railroad company, and Fresenius Medical, a German healthcare company.

Since launch the Trust has performed broadly in line with the peer group. The strategy of the Trust is to invest in the three core themes on the environment, human welfare and sustainability across a number of asset classes and geographies.

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Investment process summary

Initial screening:

• the investment universe is filtered for companies that fit the criteria of providing a net social benefit
• detailed research and analysis is then undertaken on the investments identified.

Security selection:

• investments are assessed against a number of key criteria such as valuation, management quality, environmental, social and governance performance
• valuations are predominantly cash-based.

Portfolio construction:

• stock position size is determined primarily by the risk/reward potential of a particular investment
• the portfolio is focused in nature, with 50-60 investments typically.

Risk management:

• risk is assessed prior to investment in the research process by considering the potential for loss of capital
• risk is then assessed across the portfolio by considering sector and factor risk (for example, interest rate sensitivity).

Fund Manager and investment team

Mike Fox, Fund Manager
Years in industry	11
Years at The Co-operative Asset Management	11

Mike Fox has been managing the Sustainable World Trust since launch and the Sustainable Leaders Trust since November 2003; he won Citywire's UK Growth Fund Manager of the Year in 2007. Mike was a member of the team managing the CIS Pension Fund prior to 2003 and previously trained as a chartered accountant after obtaining a Master's Degree in Mathematics from the University of Leeds.

Mike draws on the expertise of over 50 investment professionals at The Co-operative Asset Management, all based in Manchester, including:

• equities, fixed income and ESG research analysts dedicated to researching UK companies
• fund managers focused on stock selection and constructing diversified portfolios, which balance performance with risk and volatility
• operations and other experts supporting the investment process
• risk analysts, responsible for ensuring appropriate risk is taken within the portfolio.

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Why choose The Co-operative Asset Management?

The fund management activities of The Co-operative Financial Services (part of The Co-operative Group) are undertaken by The Co-operative Asset Management. The Co-operative is a household name in the UK offering a wide range of services to consumers including financial services such as insurance, banking and mortgages plus food, pharmacy and travel.

The Co-operative Group has over 12 million customers, of whom over 290,000 are investors in our unit trust range, amounting to over £2 billion of assets under management.

Our distinctive approach is reflected in a number of unique investment credentials. We are the only fund manager to:

• apply a common core approach to responsible investment across all the funds we manage
• apply active engagement across all the funds we manage
• feed valuable business insights gained from our engagement process back into company analysis performed for investment purposes.

The Co-operative Asset Management was also the first UK investor to publish its Company AGM voting record on its website in 2002†, a practice now increasingly adopted by fund management groups offering SRI.

In advocating The Co-operative Asset Management to clients, advisers can be assured that they are recommending:

• Britain's most ethical brand, The Co-operative Group*
• a responsible investment approach which fully integrates financial and ESG criteria in investment selection
• an investment process characterised by clear and informed views on why companies offer good long-term prospects
• an investment resource comprising experienced and committed individuals working to deliver out-performance while effecting positive change in the companies they invest in.

†The Co-operative Asset Management has been independently authorised and regulated since August 2009 and was previously part of Co-operative Insurance Society Limited and its subsidiary companies.

*An independent consumer survey carried out in 2007 and 2008 found that The Co-operative Group was the most ethical brand in Britain for both years. The Co-operative Group was ranked number one for 2007 and 2008 with The Body Shop and Marks & Spencer ranking second and third respectively. The GFK NOP Ethics Brand Survey was conducted in the US, UK, France, Germany and Spain amongst 5,000 individuals in total. The study found that consumers are increasingly choosing to buy brands which they believe to be ethical, with many willing to pay a premium for an "ethical guarantee". (GFK NOP Press Releases 2007 & 2008).

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Fund facts

Manager name & location	Mike Fox, Manchester
Fund type	Unit trust
Launch date	21/09/09
Index/benchmark	IMA Balanced Managed
Sector	Balanced Managed
No. holdings (as at 30/09/11)	56
Fund size (as at 30/09/11)	£77 million
Distribution dates	May, November
Prices	co-operativeassetmanagement.co.uk or the Financial Times
Sedol code	B3PXJX0
Lipper Id	GB00B3PXJX09

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How to invest

The Sustainable Leaders Trust is available to investment professionals through a number of platforms including Cofunds, Fidelity and Hargreaves Lansdown:

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