Can you invest ethically and still enjoy good returns?
For many years the big question in ethical investing was “Is it possible to get good returns from a portfolio that excludes big sectors of the market?” Then the debate turned to the nature of those screens – the processes or mechanism that excluded or included stocks from investment portfolios.
According to Nathan Parkin, Perpetual’s Deputy Head of Equities, the debate has now moved on. It’s all about meeting investor needs in both areas:
- creating a clearly defined universe of ‘ethical’ stocks
- maximising returns from within that universe.
“Ethical investors need clarity about what they’re investing in,” says Nathan. “But like any investor, they need a good return so they can use that money – whether they’re a Not–for Profit funding community services or an individual investing for their family.”
For many investors the debate relates to the type of screen:
- Negative screens - where your fund screens out undesirable companies – such as those that manufacture armaments
- Positive screens – where the fund’s screens identify companies that act ethically and direct investment dollars in their direction.
Nathan Parkin manages the billion-dollar Perpetual Ethical SRI Fund. The fund uses both types of screens to create its investable universe (watch the video above for more on how those screens are structured).
However, according to Nathan, the relative success of the fund (the Wholesale version outperformed the S&P/ASX 300 Accumulation Index by over 7% a year over the five years to end June 2016), is down to the analysis of the companies left in the universe.
“By the time our screens have done their work we have about 220 companies to look at,” says Nathan. The remaining companies are subject to the same rigorous, value and quality -oriented assessment applied to companies in Perpetual’s other Australian equity funds.
“Once they’re in our universe, we’re ruthless about returns,” says Mr Parkin, 'We only invest in companies we believe are quality businesses. That typically means companies with low debt, proven management and a strong franchise – a competitive position underpinned by a valued brand, operational excellence or unique intellectual property. And we want to buy those companies at a price that means we’re getting good value for our investors.”
- For more information on Perpetual’s Ethical SRI Fund click here (or watch Nathan’s video above).
- In May 2016, the Perpetual Ethical SRI Fund came top in the Responsible Investments section of Money Management/Lonsec Fund Manager of the Year awards.
This article is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable for your circumstances. The views expressed in the article are the opinions of the author at the time of writing and do not constitute a recommendation to act. Any information referenced in the article is believed to be accurate at the time of compilation and is provided by Perpetual in good faith. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.
The author is an employee representative of Perpetual Investment Management Limited ABN 18 000 866 535 AFSL 234426.