2015 Fund Awards: Ethical/SRI
BEST ETHICAL/SRI EQUITY FUND
Premier Ethical has won the award for best ethical/socially responsible investment equity fund. This is the fourth winners' award for the Premier group this year.
Chris Wright has managed the fund for nearly six years. He has two main ethical investment criteria. On the negative side, he has to avoid investing in companies with any significant involvement in gambling, the arms trade or any other activities considered to have an adverse overall effect on health, the environment or human dignity.
On the positive side, he seeks to invest in companies that benefit the community they operate in or the environment in general.
Premier uses an independent, external service, Ethical Screening, as well as its own in-house team to identify promising ethical companies. The fund also has an independent committee of reference, which meets regularly to discuss research relating to the ethical fund's criteria.
|UK Equity Income|
|UK Smaller Companies|
|Emerging Market and Asia|
Wright explains the investment process: 'If a company breaches the fund's negative guidelines policy, it is excluded from further consideration.
'If a stock meets the fund's positive criteria, it is examined for quality, value and momentum, each of which has been shown over the years to contribute to an individual stock's performance.
'Finally, stocks that are "neutrally ethical" and have good quality, value and momentum are added to create a balanced portfolio.'
The fund invests mainly in larger companies, but Wright says he does not make a special effort to weigh the fund's portfolio towards certain sectors, although as an ethical fund it will naturally be underweight in sectors such as tobacco, oil and mining.
He says the fund's good performance can be attributed to the fact that it was invested in undervalued situations that have benefited from the recovery in the UK economy.
The 'A' share class monitored for this award produced a three-year return of 69.04 per cent. The fund's 'B' share class, available on Interactive Investor, returned 71.58. per cent.
BEST ETHICAL/SRI MIXED FUND
CIS Sustainable World
For the second consecutive year, CIS Sustainable World has won our best ethical/SRI mixed fund award. It is the second award the fund has picked up this year; it is also winner of the best higher-risk mixed asset fund award. Its strong performance shows that investors who choose ethical/SRI funds do not have to accept inferior returns.
The fund's objective is to achieve capital growth by investing globally in companies that have a net positive benefit for society, through either the products and services they offer or the way they conduct business. After filtering out businesses that don't qualify, manager Mike Fox says he is left with an investment universe of around 250 companies globally.
The fund can invest in fixed-interest securities as well as shares. However, in recent years, Fox has kept the equity content at 80 per cent or more, which has helped it do well in its sector. Although the fund can invest worldwide, it has a bias towards the US and other developed markets.
'There is no fundamental reason why our approach cannot be applied across asset class, geography and company size,' he says. 'However, finding companies meeting our criteria will, in the end, be the dominant driver of asset allocation.'
Explaining the fund's success in recent years, Fox says: 'Over time, the sources of value creation by companies - and therefore rising share prices - are few. Successful investments tend to be characterised by creating new markets via innovation or delivering sustained growth by meeting an unmet need in society.
'We look for companies that meet either or both of these criteria. We also look for companies that lead their industries in environmental, social and governance management. We believe that in doing this, we will invest in companies that through effective management will create value for shareholders.
'This approach, rather than cramping our style, has been fundamental to our success. It has focused the fund on genuine creators of shareholder value.'
The 'C' share class monitored for this award returned 56.57 per cent over three years.
BEST BOND/SRI FUND
Rathbone Ethical Bond
Nowadays it is possible to find an ethical fund choice that invests across a number of asset classes. Here we acclaim the best fixed-interest option, Rathbone Ethical Bond. The fund has been managed for the past decade by Bryn Jones, director of fixed income at Rathbone.
'We look for bonds that fulfil our thematic views,' he says. 'The fund's ethical criteria do not cramp our style - a common misconception about ethical investment. We believe the fund's ethical criteria add an extra level of essential research to our investment process.'
Although the fund can invest internationally, Jones keeps at least 80 per cent in investment-grade UK bonds. Up to 10 per cent can go into non-/lower-rated bonds. However, there is a limit on how much the fund can have in individual issues - a maximum of 2 per cent of the fund for each issue rated BBB or below.
Otherwise, restrictions are minimal to allow Jones' high-conviction views to be applied. Economic conditions play a significant role in bond selection. Regulation also affects investment decisions.
Looking back over the past three years of consistent performance, Jones says: 'We have concentrated on robust credit analysis, and this has contributed to our strong thematic views. Our valuation screening ensures we pick the cheapest assets within this framework.
'The ethical overlay has added a positive feedback loop to this investment process, allowing us to explore what we call "yin-yang" social investments, where we get a social and an investment return from our assets.'
Being overweight in financials, particularly insurance bonds, has paid off in recent years. However, Jones acknowledges challenges ahead.
He says: 'Increases in regulation in financials, as well as increases in leverage or financial engineering in the non-financials space, are clearly key risks. Monetary policy is also a risk, as would be deflation.'
The 'Inc' share class monitored for this award returned 30.28 per cent over three years. The 'Instit Inc' class, available on Interactive Investor, returned 35.15 per cent.
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