First State Asian ethical fund beats Tulloch
Despite their limited universe, there are a handful of socially responsible funds that have been able to deliver as much as their unconstrained peers.
By Mark Smith, Senior Reporter, FE Trustnet
Tuesday June 19, 2012
First State Asia Pacific Sustainability
has a better record than Angus Tulloch’s
fund over one, three and five years, according to FE data.
fund is one of a small handful of ethical investments to have kept up with the performance of their unconstrained peers.
It is spearheaded by FE Alpha Manager David Gait
and co-manager Sashi Reddy
. The pair are also responsible for the highly rated First State Indian Subcontinent portfolio.
The objective of the fund includes a requirement to engage positively with the companies in which it invests on issues relating to sustainability.
This extra caveat has not been the limitation investors might have expected. With returns of 65.61 per cent, the fund is the second-best performer in its Asia Pacific ex Japan sector over five years, beaten only by Aberdeen Global Asian Smaller Companies. It is also a top-quartile performer over one and three years.
It has been marginally less volatile than Tulloch’s flagship fund over these time periods as well.
Performance of funds vs sector over 5-yrs
Source: FE Analytics
Funds with an ethical mandate tend not to invest in the mining sector, which Gait and Reddy’s fund has benefitted from in 2011 and 2012.
FE Alpha Manager Robin Hepworth’s £149m Ecclesiastical Higher Income
fund is another socially responsible product that leads its sector. Many investors tend to overlook this fund because it sits in the unpopular IMA UK Equity & Bond Income.
Unlike the more popular UK Equity Income funds, investments in this sector have the freedom to split assets between fixed income securities and stocks depending on where the manager sees opportunities.
With returns of 25.49 per cent over the last five years, the extra flexibility has enabled
Ecclesiastical Higher Income
to outperform the likes of Neil Woodford and Francis Brooke in the pure equity space. The fund leads its sector over five and 10 years.
Hepworth invests in companies that make a positive contribution to society and the environment through sustainable and responsible practices. The fund seeks to avoid companies with links to alcohol, tobacco, gambling, weapons or the publication of violent or explicit materials.
Chris Spear, managing director at Spear Financial, says that some funds with a socially responsible tag have varying levels of ethical demands of the companies they invest in, which helps to widen their universe of investible stocks and boost performance.
"Whilst there are a number of good ethical funds for the investor willing to take some risk, there are just a few that can give the potential for growth with one eye on the downside," commented the IFA.
"People have to decide what shade of green they are. Darker green funds tend to be of a more negative criteria - avoiding unethical activity; whereas light green has an element of flexibility as long as the underlying companies are demonstrating criteria such as fair trade or are working towards more environmental work practices."
The £7.7m SVM All Europe SRI
fund is another one of the leading lights in ethical investment. Our data shows that over the last three years it has returned 57.53 per cent.
Within the IMA Europe inc UK sector, only Allianz RCM Europe Equity Growth, managed by Hugh Cuthbert
and Neil Veitch
, has done better. It is also top decile over five years.
Spear commented: "I favour Kames Ethical Cautious
and AXA Ethical Distribution
for my clients who want an ethical fund suited for low tolerance for risk; however, they were significantly hit during the credit crunch."
"I guess what I am saying is, can you be ethical and low risk? I'm not convinced. I have noticed that some investors are willing to forego their ethical criteria in favour of lower risk."
"The priority is for me to set correct expectations - ethical, but higher risk, or non-ethical at a level of risk the client is happy with."