Montanaro 'Better World' Fund

overall rating:



Chiara Savanco
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Montanaro Better World Fund invests in global small and midcap companies which bring positive change in different industry sectors. Showing a commitment to, and delivery of ESG, as well as a long-term approach to investing, I find this fund difficult to fault. The best aspects of this fund are: firstly, the rigorous and layered process to select holding companies; the latter undergo multiple ‘evaluation’ rounds and are judged on a hybrid standard, based on Montanaro’s ethical beliefs, and EU/national financial taxonomy. This ensures that only ‘green’ companies are selected, and indeed the top holdings have a laudable green business culture. Secondly, Montanaro’s constant evaluation of holding companies, and its stakeholder engagement practices, makes this fund transformative in promoting ESG culture to firms and investors. Thirdly, the strong agency given to the ESG Committee in Asset Management and Investment decision-making proves that ESG is truly at the basis of Montanaro’s culture. The slight criticism I have relates to how the Fund is publicized; referring to a better ‘World’ fund when the asset allocation is overwhelmingly in the US, or in any case, in developed nations, is a misleading practice. Nonetheless, the distribution of holdings across 10+ countries worldwide does display the intention to bring small industry-leading firms into the spotlight, fitting the roadmap of an ESG finance transition.

What it's made of:


Montanaro’s Better World Fund holds assets totaling £678 million, spread over 50 holdings, as of 28/02/2022. The top-ten holdings (Trex Company 3.5%, Solaredge Technologies 3.5%, Icon 3.4%, Entegris 3.4%, Bio Techne 3.1%, Bruker 3.1%, Sartorius Stedim Biotech 3.0%, Idexx Laboratories 2.9%, Nova 2.9%, Ansys Inc 2.9%) are indeed small to mid-cap enterprises, as advertised by the fund. The holdings are distributed across a range of sectors, which not only reduces volatility through portfolio diversification, but also fits with the Fund’s aspiration towards a comprehensive improvement of society and the ESG practices of enterprises. A good aspect of Montanaro is that, contrary to most ‘ESG’ funds, it does not simply invest in tech companies (which have a propensity to be more ‘green’) as a ‘shortcut’ to achieving ESG, but seeks to maintain a balance in sectoral allocation. Having said this, the criticism I have is that the majority of holdings are US- based (53%) and overwhelmingly located in the developed world; in this sense, the Fund’s label ‘Better World’ is misleading. 

The ESG ratings for the top ten holdings are mostly in the ‘Medium Risk’ category, something to be expected as smaller-cap firms are naturally more prone to risk. It is therefore surprising that a few of the holdings (i.e Icon) are actually rated as ‘low risk’. A commendable aspect is that the top-10 companies all display very sustainable business plans and are all exceptionally transparent about reporting carbon footprints and governance data- which is a testament to the fund’s meticulous investment selection. Most companies have instituted specialized ESG committees, showing an integrated ESG approach to their practices; Icon, for instance, holds periodic initiatives to teach its employees how to reduce their carbon footprints both in the workplace and during remote- working, which displays how the company is ESG-proactive, rather than merely ESG-abiding. 

Special attention must always be paid to the ESG performance of companies in the healthcare/ bio-pharma sector, an industry which naturally lends itself to more waste and pollution in its production and distribution phases; indeed, the company Bio-Techne does seem to fall short of the high standards of other holdings, as it has yet failed to publish a clear Science Based Targets initiative (SBTi) to define a roadmap of best practices it will follow to commit to environmental action. This doesn’t really resonate with Montanaro’s investment statement where “companies help solve the world’s major problems”, which implies the Fund oversells its green impact with regards to some of its holdings. 

How it's made:


The Montanaro Fund factsheet provides abundant and transparent information on the methodologies used to select top-holdings, evaluate and monitor the sustainable impact of their fund; they thus live up to their mission statement and abide by legislative taxonomy (i.e the requirements under Article 9 of the European SFDR). Montanaro’s layered and meticulous holdings selection process is commendable: pre-screening includes ensuring that companies are not affiliated with the arms, tobacco, drugs industry. Then, only holdings generating more than 50% of revenue from the fund’s key ‘impact themes’ (Environmental Protection, Green Economy, Healthcare, Innovative Tech, Nutrition, Well-being) are selected. The Montanaro website claims that this is the first step of the management process, which indicates a good dedication to the selection of purpose-driven firms. After performance evaluation, the holdings are only listed if approved for impact by the ESG Committee, which shows a coherent and integrated ESG approach to finance. 

The Committee’s performance record gives reason to praise Montanaro’s commitment to its ethical and environmental mandate; the committee has rejected about 1 in 5 proposed companies on impact grounds, which has encouraged the asset managers to look for alternative holdings. This signals that the ESG Committee has agency in decision-making, and thus points towards a genuine collaborative management approach that upholds Montanaro’s sustainable mission. 

Another great aspect of the Montanaro fund relates to how they follow through in their promises to ESG, throughout the investment process; as clearly detailed in their shareholder engagement/voting policy documents, Montanaro Analysts regularly meet with shareholding companies to discuss investments and regulate corporate responsibility policy. This is great to ensure transparency and good performance on behalf of corporations at all stages of the investment. Another positive aspect is that the fund has a corrective, rather than merely prescriptive, approach to investment in ‘green’ companies; through weekly flow monitoring and collaborating with reputable information providers like Factiva, Montanaro constantly evaluates the performance of companies based on the UN Global Compact and national stewardship laws. I find this hybrid approach to company evaluation, both using Montanaro-based standards and EU financial taxonomy, very trustful as it creates a rigorous ESG monitoring framework. Montanaro’s constant monitoring process indeed proves that they are long-term investors. As opposed to short-term investments, which often only focus on rapid and substantial economic returns, a long-term ESG approach is commendable because it not only sets standards, but contributes to transforming company cultures and encouraging improvement in ESG.

Who makes it:


Montanaro better world fund is managed by Montanaro, an asset management ‘boutique’ established in 1991 which is known for its work with medium and small-cap enterprises. The company’s history and purpose statement are promising; the fact that it was founded by Charles Montanaro, an Anthropology graduate, on the tail of experience in other asset management firms, makes it plausible to believe that Montanaro does truly follow a differentiated, purpose-driven approach. The rich educational background of its co-founder suggests that Montanaro is not just another profit-seeking enterprise headed by somebody who has been trained to prioritise profit and performance. The ESG-aware investment approach is shown through the firm’s operational culture: the appraisal and remuneration of Analysts is based on their ESG performance, which is promising for how ESG standards are upheld by the whole team, and throughout the investment process.  

Another positive aspect of the Fund relates to Montanaro’s good Governance: the firm is very attentive to issues of stakeholder inclusivity and proxy voting, the summaries for which are published on their website. The agency and power of the Sustainability Committee and Montanaro’s Chief Executive Board are designed according to a checks-and-balances system, where The Executive Committee reviews the work of the ESG Committee. This points towards a promising collaborative approach, although it does flag up the issue that the Board might ultimately overrule the decisions of the ESG Committee, thus casting doubt on how actually ‘in control’ the latter is. 

Having said this, Montanaro has a praiseworthy, inclusive and diverse staff, which speaks to its commitment to better investing. The median age of analysts across corporate teams is quite young, which is promising for a dynamic and sustainability-attentive approach. The Sustainability Committee, especially, has a balanced gender ratio, and the fact that the Chairman of the Sustainability Committee is also Head of Client Relationship testifies an integrated approach to Business development, Sustainability and Finance, proving Montanaro strives to engage with holding companies during the investment process.