A good example is property. A couple of years ago, no-one wanted to read anything with the word ‘property’ in the headline, then at the start of 2013 we saw more and more interest in the stories on the formerly unloved asset class.
Lo-and-behold, the sector started creeping up the sales charts and eventually topped it in May with net retail sales of £491m.
One word which always seems to put investors off is ‘ethical’ – so much so that I had to use this roundabout introduction to get you to read about why I’ve just added the Kames Ethical Cautious Managed fund to my NISA.
For those of you who don’t know Kames Ethical Cautious Managed, the £209.2m fund sits in the IMA Mixed Investment 20%-60% Shares sector and invests in UK equities, bonds and cash.
Managed by Audrey Ryan and Iain Buckle, it launched in March 2007 and since then has delivered a 48.37 per cent return.
I’m not an ethical investor but the fund caught my eye when I was looking into ideas for my brother, who most definitely is. I was impressed by its performance profile and holdings, which differ nicely to my main UK choice Royal London UK Equity Income, so kept a watch on it.
Kames Ethical Cautious Managed has a stellar track record, sitting in the first quartile of its sector over one, three and five years. FE Analytics shows it was also top decile in 2010, 2012 and 2013.
More recently performance has slipped – it has lost 0.56 per cent over six months while the sector gained 1.88 per cent – but this is a short time frame for a fund with rolling one and three year targets.
Performance of fund vs sector over 5yrs
Source: FE Analytics
Despite being relatively niche, the fund is well regarded by analysts. It has an FE Crown Fund Rating of five and appears in Square Mile Investment Consulting & Research’s Academy of Funds, where it holds an A rating.
Buckle is FE Alpha Manager-rated, thanks to his strong record running this fund as well as Kames Sterling Corporate Bond and Kames Ethical Corporate Bond.
The fund’s ‘dark green’ ethical screening process means it can behave a little differently to its peers.
For example, its volatility over seven years is an annualised 8.50 per cent, compared with the sector average of 6.77, while its maximum drawdown over the same period was 26.37 per cent, against the peer group’s 23.53 per cent.
One of the reasons I decided to add Kames Ethical Cautious Managed to my portfolio is to diversify away from Martin Cholwill’s £1.4bn Royal London UK Equity Income fund.
While still completely happy with Cholwill’s performance and positioning, I don’t want all of my 40 per cent exposure to UK equities to be in the hands of one manager.
The Kames fund’s UK equity exposure sits nicely next to Royal London UK Equity Income’s, in my view.
The funds share no top 10 holdings, with Ryan and Buckle building more of a mid/large cap growth portfolio as opposed to Cholwill’s large cap value approach.
Kames Ethical Cautious Managed’s largest equity sector bet is in support services with a 20.45 per cent allocation, followed by media with 11.1 per cent and life insurance with 9.64 per cent.
Royal London UK Equity Income, on the other hand, has 27 per cent in financials, 23.3 per cent in industrials and 12.2 per cent in consumer services.
Source: FE Analytics
It could be argued that my portfolio is a little cautious already, as I already have decent amount in Troy Trojan; however, capital preservation is very important to me.
Not all of my NISA is retirement money and some is there to possibly be used in the next five to 10 years – holidays, kids and weddings, for example – so cautious funds with decent growth are my key hunting ground.
Moreover, there's not that much overlap between the Kames and Troy offerings and they have a five-year correlation of just 0.55.
They do different things for me – Troy Trojan is my ‘insurance policy’, while Kames Cautious Ethical Managed is there to diversify my core UK exposure and bring down volatility.
Given my only fixed income exposure comes through the government debt holdings of Trojan, I’m also happy to get a wider spread of bonds through Kames Ethical Cautious Managed, which currently has 8.7 per cent in sovereigns, 17.5 per cent in corporate and 4 per cent in securitised debt.
The final key attraction for me is the very thing that makes the fund disliked by most investors – its ethical approach.
I’m unlikely to aim for a 100 per cent ethical portfolio like my brother but I think this is a fund that manages to make the world a better place while delivering me a decent return.
“Dark green” is the strictest of ethical screenings, meaning Ryan and Buckle can’t invest in gambling, alcohol, nuclear power, tobacco and companies that have made political contributions of more than £25,000 over the past 12 months.
It’s encouraging to see that the fund has managed to outperform in recent years despite not holding areas such as gambling and tobacco, which has performed very well of late.
Kames Ethical Cautious Managed is the only ethical fund in my NISA. I have holdings in there that tick the box for capital growth and preservation, my two main goals, but to have a small part of my ‘outcome allocation’ tilted at doing some good balances out that money-grabbing side of me.
