With the awareness around ethical investing increasing in recent years, the universe of funds with proven track records available has greatly expanded providing investors with a range of strategies to choose from.
Although the proportion of industry assets held in ethical funds has remained relatively stable, asset managers are aware that the strategies are becoming increasingly popular among larger pension schemes and are likely to play an important part in investor portfolios in the years ahead.
As such, with Good Money Week underway – an initiative to promote sustainable and ethical investment, pension, savings and banking options – FE Trustnet has decided to look at some of the top-rated options in the Investment Association available for investors.
In the below article FE Trustnet has highlighted four five FE Crown-rated funds from the Investment Association universe with an ethical mandate.
BlackRock GF New Energy
The first top-rated ethical strategy in this article is the BlackRock GF New Energy, a $1.1bn fund investing at least 70 per cent of its assets in global companies engaged in alternative energy and technologies.
Overseen by Alastair Bishop since 2015 and joined by Charlie Lilford earlier this year, the fund invests in a range of companies including those engaged in renewable energy technology, alternative fuels and energy efficiency among other sectors.
Its largest holding is US clean energy company Nextera Energy, according to its most recent factsheet, which represents 6.26 per cent of the portfolio. Other top holdings include Spanish renewable energy company EDP Renovaveis, French energy management firm Schneider Electric, and Italian energy & gas firm Enel.
Around two-thirds of the portfolio is invested in large-cap stocks worth more than $10bn with a further 28 per cent invested in mid-caps of between $1bn-10bn.
The fund – located in the IA Specialist sector – has delivered a 56.55 per cent total return over the past three years, although it has risen by just 11.63 per cent since launch in 2001.
Performance of fund over 3yrs
Source: FE Analytics
The fund has an ongoing charges figure (OCF) of 1.33 per cent.
Pictet Clean Energy
Another energy-focused fund making it onto our list is Pictet Clean Energy, managed by Luciano Diana, Xavier Chollet and Christian Roessing.
The $724m fund invests at least two-thirds of its total assets in global stocks contributing to and benefiting from the switch to lower-carbon energy sources.
As such, the fund favours companies “operating in the field of cleaner infrastructures and resources, carbon-reducing technologies and equipment, the generation, transmission and distribution of cleaner energy and energy efficiency”.
Over three years, the Pictet Clean Energy fund has delivered a 47.23 per cent total return compared with a 59.66 per cent gain for the average IA Global peer and a 69.72 per cent return for the MSCI World benchmark index.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Analysts at FE Invest noted that the fund suffered a large dip after the EU referendum in the UK, although it has since managed to regain some of these losses. They also noted that while the fund is more volatile than the MSCI World index it is “significantly less volatile” than peers in the energy sector as it does not depend on large swings in the oil price.
“Pictet is a pioneer in sustainable thematic investment and it likes to invest across all aspects of each megatrend,” they noted. “Its focus on specific, often under-researched sectors provides investors with the unique opportunity to diversify through largely untouched investment areas.”
Pictet Clean Energy has an OCF of 1.2 per cent.
Rathbone Ethical Bond
The first of two top-rated ‘good’ fixed income funds is Rathbone Ethical Bond, managed by Bryn Jones and Noelle Cazalis.
The £1.2bn bond fund aims to provide a regular, above-average income through investment in a range of bonds that meet strict ethical and financial criteria.
The benchmark-agonistic fund is managed with “a strongly-defined view that accounts for economic and political trends, company analysts and thematic ideas”.
Cash flow and strong balance sheets are key in the managers’ bond selection as well as the ‘Four Cs Plus’ principles: character, capacity, collateral and covenants, with ‘Plus’ representing conviction to think differently to the market.
The final stage of the process is to add an ethical screen which aims to identify companies with “progressive or well-developed practices and policies incorporating community investment, employment opportunities and human rights”.
Banks and insurers make up much of the fund’s holdings representing 39.93 per cent and 33.99 per cent of the portfolio respectively.
Analysts at FE Invest noted that fund takes less market risk than the broader IA Sterling Corporate Bond sector and, as such, while it may lag its peers in rising markets, it should protect on the downside.
“Jones strongly believes that he can improve society through selective debt financing and, over its history, the fund has invested in many educational and social housing programmes,” they noted. “The impact of the ethical screening on bond selection has been positive on the fund’s performance.”
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Over three years the Rathbone Ethical Bond fund has delivered a total return of 16.81 per cent, compared with a 13.72 per cent gain for the IBOXX UK Sterling Non-Gilts All Maturities benchmark and a 12.9 per cent return for the average IA Sterling Corporate Bond fund.
It has a yield of 4.2 per cent and an OCF of 0.67 per cent.
Royal London Ethical Bond
The second fixed income portfolio is the £622.6m Royal London Ethical Bond fund. As well as holding the maximum number of FE Crowns, it is also managed by an FE Alpha Manager: Eric Holt.
The fund aims to maximise income and maintain capital over the medium-to-long term (5-7 years) by investing in more than 300 holdings meeting its ethical criteria.
Its ethical screening process typically excludes companies involved in animal testing, nuclear power, the military, alcohol, and tobacco. It also flags companies with a strategic presence in countries of concern over human rights and companies with a high environmental impact with no management systems.
As such, the fund’s largest sectoral exposure is to structured debt, which represents 23.5 per cent, with banks & financial services making up a further 20.2 per cent of the portfolio.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Over three years, the Royal London Ethical Bond fund has delivered a total return of 15.37 per cent compared with an 11.75 per cent gain for the average IA Sterling Strategic Bond sector fund.
The fund has a yield of 3.34 per cent and an OCF of 0.54 per cent.