Risk management

All investments in the sub-funds of Triodos SICAV I are exposed to a variety of risks. Each sub-fund is intended for long-term investors who can accept the risks associated with investing primarily in the securities of the type held in that sub-fund. In addition, investors should be aware of the risks associated with the active management techniques that are expected to be employed by the management company. An investment in shares of a sub-fund does not constitute a complete investment programme. Investors may wish to complement an investment in a sub-fund with other types of investments.

Operational risks

Operational risks are the risk of damage resulting from inadequate or failed internal processes, people and systems or from external events, such as changes in laws and regulations. In order to manage the operational risks, Triodos Investment Management has comprehensively documented its risk management policy. These risks are determined, measured, managed and monitored on an ongoing basis by means of appropriate procedures and reporting methods.

  • ISAE3402
    As management company of the fund, Triodos Investment Management aims for continuous improvement of the effectiveness and manageability of the processes. This resulted in the start of an ISAE3402 project in 2016. The ISAE3402 report is tangible proof of the organisation and existence of the management company’s core processes. This provides the investors in the fund with added assurance that the processes are carried out in a controlled manner.
  • Solvency
    Triodos Investment Management amply meets the minimum solvency requirements for asset managers. This makes Triodos Investment Management a solid party that is sufficiently able to absorb setbacks.

Financial risks per sub-fund

Triodos Sustainable Bond Fund

Triodos Sustainable Bond Fund primarily invests in euro-denominated corporate bonds, sovereign bonds and sub-sovereign bonds that comply with the sustainable investment strategy described in the general part of the prospectus of Triodos SICAV I (section on “Sustainability assessment”), and offer good investment prospects. Since the sub-fund only invests in euro-denominated bonds, currency risk for euro-based investors is avoided.

Interest rate risk

Triodos Sustainable Bond Fund is exposed to interest rate risk. Values of fixed-income securities will generally fluctuate in inverse proportion to changes in interest rates and such fluctuations may affect bond prices accordingly. This risk is reflected by the modified duration of the portfolio, which is 6.17 as per December 31, 2016. The modified duration of the benchmark was 6.16.

Credit risk

Triodos Sustainable Bond Fund is exposed to credit risk. Credit risk comprises credit default risk and concentration risk. Credit default risk is the risk that the issuer of a bond fails to meet its obligation to pay a coupon or the principal upon maturity of the bond. This risk is mitigated by carefully assessing the credit quality of the obligor when selecting a bond issue and is further limited by refraining from investing in bonds below investment grade (BBB). The concentration risk is mitigated by limiting the exposure to single obligors, industry sectors and countries in accordance with UCITS investment restrictions. In 2016 no defaults were reported for the portfolio of Triodos Sustainable Bond Fund.

The credit risk of the sub-fund, measured in terms of the weighted average rating of the portfolio, is AA2. The average rating of the benchmark is also AA2.

Triodos Sustainable Equity Fund

Triodos Sustainable Equity Fund primarily invests in shares of large-cap companies that are listed on worldwide markets, comply with the sustainable investment strategy described in the general part of the prospectus of Triodos SICAV I (section on “Sustainability Assessment”), and offer good investment prospects.

Equity risk

Investors in Triodos Sustainable Equity Fund are subject to the risks associated with equity and equity-related securities, including fluctuations in market prices, adverse news about issuers or markets and the fact that with respect to payment rights, equity and equity-related interests are subordinate to other corporate securities, including debt securities. Investments in equities are generally considered more volatile than other types of investments.

The equity risk is mitigated by avoiding large exposures to any one issuer, sector or country. The diversification of the portfolio across these categories is shown on page 61 and further.

In 2016, however, the sub-fund was negatively affected by the sustainability selection (e.g. no fossil fuels and an underweight position in the financial sector relative to the MSCI World Index) and the magnitude of the decline of individual share prices in the renewables area.

Currency risk

The reference currency for Triodos Sustainable Equity Fund is the euro, but investments may be denominated either in euros or in foreign currencies. Currency exchange rates may fluctuate significantly over short periods of time, which may also contribute to fluctuations in the sub-fund’s performance. The currency exposure will affect the sub-fund’s performance, irrespective of the performance of its securities investments, since the currency risks that arise through non-euro denominated investments are not hedged. The sub-fund’s currency exposure as a percentage of the portfolio is shown below.

In 2016 the sub-fund was negatively impacted by the decline of sterling versus other major currencies. Because of its sustainable nature, the investment universe has a lower exposure to US dollars than the MSCI World Index. In the portfolio this impact is mitigated by adding investments in USD-denominated companies.

Breakdown by currency as at December 31, 2016 (as a % of portfolio)

Triodos Sustainable Equity Fund – Breakdown by currency (pie chart)

Triodos Sustainable Mixed Fund

Triodos Sustainable Mixed Fund primarily invests in shares of large-cap companies listed on worldwide markets and in euro-denominated corporate bonds, sovereign bonds and sub-sovereign bonds that comply with the sustainable investment strategy described in the general part of the prospectus of Triodos SICAV I (section on “Sustainability assessment”), and offer good investment prospects. Investors in Triodos Sustainable Mixed Fund are subject to the risks associated with bonds and equities, including fluctuations in interest rates and the risk of inflation and fluctuations in market prices, adverse news about issuers or markets and the fact that with respect to payment rights, equity and equity-related interests are subordinate to other corporate securities, including debt securities. A fund with substantial investments in equities is generally considered relatively volatile.

Interest rate risk

Triodos Sustainable Mixed Fund is exposed to interest rate risk. Values of fixed income securities will generally fluctuate in inverse proportion to changes in interest rates and such fluctuations may affect bond prices accordingly. This risk is reflected by the modified duration of the portfolio, which is 6.18 as per December 31, 2016. The modified duration of the fixed income part of the benchmark was 6.22.

Credit risk

Triodos Sustainable Mixed Fund is exposed to credit risk. Credit risk comprises of credit default risk and concentration risk. Credit default risk is the risk that the issuer of a bond fails to meet its obligation to pay a coupon or the principal upon maturity of the bond. This risk is mitigated by carefully assessing the credit quality of the obligor when selecting a bond issue and is further limited by refraining from investing in bonds below investment grade (BBB). The concentration risk is mitigated by limiting the exposure towards single obligors, industry sectors and countries in accordance with UCITS investment restrictions. In 2016 no defaults were reported for the portfolio of Triodos Sustainable Mixed Fund.

The credit risk of the sub-fund, measured in terms of the weighted average rating of the portfolio, is AA2. The average rating of the benchmark is two tiers lower, at A1.

Equity risk

Investors in Triodos Sustainable Mixed Fund are subject to the risks associated with equity and equity-related securities, including fluctuations in market prices, adverse news about issuers or markets and the fact with respect to payment rights, equity and equity-related interests are subordinate to other corporate securities, including debt securities. Investments in equities are generally considered more volatile than other types of investments.

The equity risk is mitigated by avoiding large exposures to any one issuer, sector or country. The diversification of the portfolio across these categories is shown on page 67 and further.

In 2016 the equity risk for the sub-fund was influenced by the impact of the fund’s sustainability focus on the sector selection (no energy companies, underweight position in financial institutions) and stock selection (solar cell manufacturers). As compared to the benchmark of the sub-fund, around 85% of the active risk stems from the equity risk, 13% is attributable to currency risk and 2% is accounted for by credit and interest rate risk.

Currency risk

The reference currency for Triodos Sustainable Mixed Fund is the euro, but investments may be denominated either in euros or in foreign currencies. Currency exchange rates may fluctuate significantly over short periods of time, which may also contribute to fluctuations in the sub-fund’s performance. The currency exposure will affect the sub-fund’s performance, irrespective of the performance of its securities investments, since the currency risks that arise due to non-euro denominated investments are not hedged. The sub-fund’s currency exposure as a percentage of the portfolio is shown below.

Breakdown by currency as at December 31, 2016 (as a % of portfolio)

Triodos Sustainable Mixed Fund – Breakdown by currency (pie chart)

Triodos Sustainable Pioneer Fund

Triodos Sustainable Pioneer Fund primarily invests in shares issued by small and medium-sized listed companies. Companies that are eligible for investment by the sub-fund are typically Corporate Social Responsibility industry leaders on the basis of their sustainable business processes and the sustainable products or services that they provide, as described in the general part of the prospectus of Triodos SICAV I (section on “Sustainability Assessment”).

Equity risk

Investors in Triodos Sustainable Pioneer Fund are subject to the risks associated with equity and equity-related securities, including fluctuations in market prices, adverse news about issuers or markets and the fact that with respect to payment rights, equity and equity-related interests are subordinate to other corporate securities, including debt securities. Investments in equities are generally considered more volatile than other types of investments. The sub-fund’s focus on small- and medium-sized listed companies further increases volatility.

The equity risk is mitigated by avoiding large exposures to any one issuer, sector or country. The diversification of the portfolio across these categories is shown on page 78 and further.

Currency risk

The reference currency for Triodos Sustainable Pioneer Fund is the euro, but investments may be denominated either in euros or in foreign currencies. Currency exchange rates may fluctuate significantly over short periods of time, which may also contribute to fluctuations in the sub-fund’s performance. The currency exposure will affect the sub-fund’s performance, irrespective of the performance of its securities investments, since the currency risks that arise due to non-euro denominated investments are not hedged. The sub fund’s currency exposure as a percentage of the portfolio is shown below.

Breakdown by currency as at December 31, 2016 (as a % of portfolio)

Triodos Sustainable Pioneer Fund – Breakdown by currency (pie chart)

For further information about the risks we refer to the prospectus of the fund.

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