ethical fund investment
brin¯in¯ the benefits of multimana¯er
to ethical investors
¯uide for investors
at a ¯lance
3 the problem with conventional ethical funds
4 our approach to investment management
5 the skandia ethical fund
6 the ethical screening process
8 it’s all in the blend
10 manager profiles
14 glossary of terms
the problem with
conventional ethical funds
People apply ethical and This is entirely proper as many ethical company that tests its products on
environmental concerns to many investors will wish to avoid such animals may still be deemed
areas of their lives, for example by sectors and companies. However, it unacceptable, however well it treats
giving money to charities, buying fair means that many ethical funds will its staff or the community.
trade products, choosing organic tend to underperform when these
food or recycling household waste. sectors do well. It was this 'conflict of This is compounded by the fact that
capital and conscience' that led the most ethical funds are run by a single
However, only a small minority put Department of Trade to reject the manager, and are therefore unable to
their money where their morals are by first application for an ethical unit add value or diversify risk through
investing in companies that help trust in 1973, and the issue is as manager selection. Investors in these
rather than harm the planet, its relevant today as it was then. funds are caught by the 'double
people and its animals. This seems whammy' of a single manager fund
surprising given that the first ethical One solution to emerge in recent unable to diversify between managers
funds were launched as long ago as years is to 'accentuate the positive' and an ethically restricted portfolio
1984 and there are now more than by investing in companies that have unable to select from the full
50 ethical funds available to environmental or social policies, spectrum of stocks. Furthermore,
UK investors. support charities and the local many ethical funds invest exclusively
community and have good employee in a single market, often the UK, and
Some are put off ethical funds relations. This is sometimes coupled therefore do not benefit from
because of the perceived risk of with an 'engagement' approach international diversification.
investing in an ethically restricted which seeks to influence
portfolio. Typically, an ethical fund management to improve company However, there is an alternative
will have little or no exposure to behaviour. This enables many of the approach which can help to
sectors such as tobacco, armaments newer ethical funds to invest in overcome these concerns. It is called
or pharmaceuticals, together with companies which were previously MultiManager investing, and it is an
many large oil companies and banks, 'off limits'. The fact remains, area in which we have particular
particularly those involved in the however, that many ethical investors expertise.
financing of environmentally still wish to avoid such companies.
damaging projects or oppressive An arms manufacturer, a tobacco
regimes. company or a pharmaceuticals
our approach to
how we invest
In our opinion, no single fund Our solution is to combine both Managers are then monitored closely
management group can be the best approaches to offer 'the best of both to ensure they remain the optimum
in all areas at all times. Even the most worlds'. By using both existing funds choice, while the overall make-up of
admirable management groups will and bespoke portfolios we can offer the fund is kept under constant
have periods of underperformance, access to well known fund managers review with the aim of delivering
whether because their investment recognised as leaders in their field more consistent performance within
style does not suit every market, due and other leading managers who may each area.
to fund manager changes or down to be less well known in the UK but are
plain bad luck. acknowledged as experts in their We seek outperformance (above
home markets. average returns) primarily by using
Our MultiManager approach is the most skilful managers rather than
designed to diversify this manager Our unrivalled access to world-class trying to 'second guess' markets or
risk within and across investment investment managers is only possible take major 'bets' on any particular
markets. through the size of our funds under sector (type of company), size of
management and the negotiating stock or investment style as we
There are two approaches to power it gives us. believe that this can introduce
MultiManager investing – 'fund of unnecessary risk into the funds.
funds' and 'manager of managers'. We offer a collection of well Each fund is therefore carefully
Funds of funds select from funds diversified, carefully constructed constructed by our team of experts –
already available to retail investors, funds, run by a range of world-class one of the largest in the industry –
while manager of managers funds investment managers. Managers are to provide a well balanced and high-
invest in specially-created portfolios selected for their expertise in quality investment.
which, in general, are only available particular areas – where they are free
to institutional investors. to deliver potentially strong
performance – while the overall fund
is managed to offset the risks taken
by each individual manager.
Skandia was named as Best
Multi Manager Provider in the
MoneyMarketing Awards for
4 2005, 2006, 2007 and 2008.
The Skandia Ethical Fund offers mana¯ers held within the skandia ethical fund
all the benefits of our MultiManager
We have appointed JPMorgan Asset
Management (JPMAM) to manage Impax Environmental Markets
around three-quarters of the Fund (Ireland) Fund
through a bespoke portfolio created 7%
exclusively for the Skandia Ethical
Fund. We appointed JPMAM as we AVIVA UK Ethical Fund
wanted the majority of the assets to 10.5%
be managed by a leading mainstream
The JPMAM portfolio is complemented Equity Fund JPMorgan
by holdings in three retail ethical and 10.5% Asset Management
environmental funds, which we Ethical mandate
regard as among the best in the field. 72%
For further information on the
managers please see pages 10 to 13.
Target allocation as at 30 April 2009.
As the funds are actively managed, the actual allocations and managers are subject to change.
Terms in italics are defined in the ¯lossary of terms on page 14.
The ethical investment criteria applied to the Skandia Ethical Fund are among the strictest available, because this is what
we believe the majority of UK ethical investors are looking for. The screening process is applied to the whole Fund to
ensure that all stocks held satisfy the criteria. The criteria for screening are under constant review and will be adjusted to
reflect changing circumstances and emerging concerns.
Please be aware that the Fund is unable to invest in certain stocks on ethical grounds, and as a result may be more
volatile than some more diversified funds.
Reasons for excluding a company • Environmental issues – companies • Armaments – companies that
from the portfolio (the negative will be excluded where their manufacture or sell weapons or
criteria) are currently as follows: activities have a significant weapons systems, or provide
negative environmental impact, strategic components or services
• Animal testing – companies such as mining, chemical specifically for military use.
which develop or manufacture manufacture and oil production,
animal-tested cosmetics, unless those companies undertake • Banks – companies with
industrial or household chemicals, positive initiatives that effectively commercial lending operations will
or pharmaceutical or healthcare address those impacts (see be excluded if there is evidence
products, or provide positive criteria overleaf ). that the bank has been involved in
animal-testing services. financing environmentally or
• Human rights – the portfolio will socially controversial projects,
• Factory farming – companies avoid companies with operations particularly where such projects
involved in the rearing of animals in developing countries and undermine stated environmental
in intensive conditions. countries regarded as having and/or social policies or
oppressive regimes where objectives.
evidence is held of their
involvement, either by collusion or • Gambling – companies whose
complacency, in abuses of human primary activity is the operation of
rights. gambling facilities.
• Nuclear – companies that are • Social issues – companies that If a company held by the Skandia
involved in the generation of provide socially beneficial Ethical Fund no longer meets the
nuclear power, or provide nuclear products and services, such as criteria, the stock will be sold in a
services to the military. social housing, home care and timely and ordered manner.
nursing, or demonstrate
• Pornography – companies involved outstanding commitment to the The retail fund managers held by the
in the production or distribution of communities in which they Ethical Fund use their own ethical
pornographic material. operate. research teams and/or the Ethical
Investment Research Service (EIRIS)
• Alcohol – companies whose • Environmental management – to screen investments. In addition,
primary activity is the manufacture companies that apply a systematic Ethical Screening periodically
or sale of alcoholic drinks. approach to the management of reviews the retail funds to ensure
their environmental impact compliance with our ethical
• Tobacco – companies whose through, for example, screening criteria.
primary activity is the production environmental management
or manufacture of tobacco products. systems, auditing and reporting. The screening process acknowledges
that ethical issues are wide-ranging
Reasons for including a company in • Environmental products and and it is impractical to list all issues of
the portfolio (the positive criteria) services – companies whose concern. The Fund is operated on the
are currently as follows. The positive products and services produce basis that additional exclusions may
criteria do not override the negative environmental benefit, such as be made where a company’s
but are used to distinguish between pollution control systems, waste operations are judged to be
companies if the negative criteria are management and recycling unacceptable to the typical investor
passed. services, renewable energy and in the Fund. Examples include
public transport. involvement in the fur industry, the
• Employee relations – companies sale of whale meat and significant
that operate equal opportunities We employ a specialist firm called involvement in genetic modification.
policies or abide by codes of Ethical Screening to determine which
conduct regarding labour companies meet the ethical criteria.
standards throughout their With a team of dedicated analysts
operations. who research stocks worldwide on
our behalf, Ethical Screening
provides a list of permitted
investments to JPMAM and ourselves
on a monthly basis.
it's all in the blend
Ethical funds are typically more The four managers selected to run Below is a simple illustration of the
volatile than the market as a whole, the assets in the Skandia Ethical relative positions of the four
outperforming when permitted Fund are chosen not only on the managers, based on a combination
stocks and sectors do well and basis that they are among the of investment style and company
underperforming when they are no leading managers in their fields, size weightings, compared with the
longer in vogue. The Skandia Ethical but also because they offer average ethical fund. Blending the
Fund cannot eliminate this risk complementary investment managers in this way means we are
entirely, but seeks to minimise it by approaches. able to balance investment styles
diversifying the portfolio and spread risk, with the aim of
internationally and across managers. reducing volatility and increasing
For illustrative purposes only, comparing the relevant positions of the Skandia Ethical Fund’s
Source: Skandia Investment Research
You can invest in the Skandia Ethical Minimum investments and charges
Fund as a unit trust or ISA investment may differ slightly if you invest via
from as little as £1,000 lump sum or Selestia Investment Solutions or
£50 per month. You can also other fund platforms.
consolidate your existing ISA
investments via ISA transfers or The Fund is available across the
through the Selestia Investment Skandia product range, which
Solutions investment platform. includes Skandia's investment
bonds, pensions and offshore
If you invest directly with Skandia investment bonds.
Investment Management Limited,
there will be an initial charge of 5% You should note that the
and an annual management charge performance of the life, pension and
of 1.25%. The total cost of all annual offshore funds will not be the same
charges and expenses, including the as for the unit trust because of
annual management charge, is taxation adjustments, life company
estimated as 1.91% and you can sell fund charges and the investment
your investment at any time with no process. Your financial adviser can
additional charges. provide full details.
JPMorgan Asset Management For stock selection, Howard Williams
Ethical Portfolio applies an ethical overlay to JPMAM's
mainstream stock recommendations.
The analysts use a proprietary
quantitative ranking tool for ideas
generation, which favours stocks with
momentum and value. Shares are
A diversified portfolio of 60 to 70 scored between 1 and 5 depending on
stocks, driven by a strong philosophy the strengths exhibited for the various
which seeks to exploit market characteristics.
Fund Manager – Howard Williams. Whereas a typical ethical fund manager
will tend to have a persistent emphasis
JPMorgan Asset Management towards smaller companies and growth
(JPMAM) have a respected, well stocks, JPMAM seeks to run a more
organised and well resourced team balanced approach across company
of global sector analysts located in sizes, countries and investment styles.
London and groups of regional analysts This philosophy ensures a balanced
located round the globe. The team portfolio with good growth and value
is backed by an organisation that characteristics.
provides support in terms of systems,
people and management.
The resources are organised in such a
way that the ethical portfolio managed
solely for us receives a high level of
Aegon Ethical Equity Fund Ryan's philosophy is based on the twin Ryan constructs her portfolio by
beliefs that investment research must bringing together mainstream equity
be alive to the next big theme and that views and the ethically screened stock
valuation is key – focusing on company list. Ryan also brings with her previous
fundamentals, valuation measures and mainstream experience in smaller
technical drivers. Not only is there no companies. Aegon takes its corporate
A diversified portfolio of 80 to 100
distinct style bias, the process also responsibilities seriously and is a more
securities resulting from a pragmatic
amalgamates top-down macroeconomic active shareholder than many ethical
philosophy focusing on three key
work with bottom-up stock picking. fund managers.
disciplines – leadership, teamwork and
communications. The Ethical Investment Research
Fund Manager – Audrey Ryan. Service (EIRIS) provides the ethical
screening service for the fund and
Aegon believes that teamwork is the
Aegon obtains advice from EIRIS
best way to achieve its goals. Strong
where companies are assessed for
leadership, combined with the
positive attitudes towards their
empowerment of individuals, is the
workforce, the communities in which
key to success. Healthy debate is
they do business and the ways in
encouraged with themes and ideas
which they protect the natural
challenged. There is buy-in from the
whole team on any course of action,
which ensures consistency.
AVIVA UK Ethical Fund The process is built around rating
(AVIVA Investors) companies on their ability to improve
or detract from society (eg those that
deliver better quality of life or reduce
the strains on global ecology).
They believe they will be able to select
companies that will in the long run
deliver better than average impacts on
A top-down, Growth At a Reasonable society and better than average
Price (GARP) philosophy results in a investment returns.
50 to 70 stock portfolio.
The process starts with a thematic
Fund Manager – Peter Michaelis.
analysis. This involves reviewing key
AVIVA is clearly committed to Socially ethical themes that will lead to certain
Responsible Investment (SRI), with industries and stocks becoming
over 13 years in managing SRI funds winners or losers. They focus on
and one of the largest and most identifying the social and
experienced teams in the industry. environmental factors that will have
The team believe that SRI will help the greatest impact at the financial
alleviate poverty and environmental level for the company. These are then
destruction and at the same time rated on 'business sustainability' and
deliver above-average investment 'visions and strategy' in what they call
returns. their ‘sustainable ratings matrix’ A
portfolio of 50 to 70 stocks is then
constructed from the positive stock
selection that results.
Impax Environmental Markets Investments are made predominantly in While the strength of the technology is
(Ireland) Fund quoted companies which provide, an important factor in the selection of
utilise, implement or advise upon the stocks, the team believes in
technology-based systems, products rigorous fundamental analysis and
or services in Environmental Markets, focus on five attributes when choosing
particularly those of alternative energy portfolio investments: compelling
and energy efficiency, water treatment business proposition based on proven
The fund was launched to enable and pollution control, and waste technology, management quality,
investors to benefit from rapid and technology and resource management. identification of new growth markets,
sustained growth anticipated for development of global environmental
Companies are selected on the basis of
cleaner and more efficient delivery of and energy policies and regulations,
their potential for generating capital
basic services of energy, water and and finally valuation anomalies and
growth, on a bottom-up basis
waste. sector volatility. Much of the research
Fund Managers – Bruce Jenkyn-Jones is undertaken in-house, but with the
and Ian Simm. increasing number of brokers covering
these companies, external research is
¯lossary of terms
Bottom-up analysis Growth investing Momentum investing
The search for outstanding A strategy in which an investor seeks Investment based on a rising trend in a
performance of individual stocks out stocks deemed to have good company's earnings or price
before considering the impact of growth potential. In most cases, a movements. A momentum manager
economic trends. The companies may growth stock is defined as a company will seek to ride out the trend and sell
be identified from research reports, whose earnings are expected to grow the stock once it has peaked.
stock screens etc (as opposed to at an above-average rate compared
top-down analysis). with its industry or the overall market.
An approach to investment
Fundamentals Macroeconomics management which seeks to use
Information relating to the economic Economic analysis concerning broad statistical or numerical methods, rather
well-being of a company such as trends and influences on the economy, than more subjective (or qualitative)
revenue, earnings, assets, liabilities and such as the interaction of fiscal and factors.
growth. These factors are used to monetary policies, Gross Domestic
determine the worth of an investment Product (GDP), balance of payments
The investment approach a manager
in fundamental analysis. A company etc. As opposed to microeconomics
takes to achieve his or her objectives.
with little debt and a lot of cash is which focuses on individual units such
There are many different kinds of style,
generally considered to have strong as companies and markets to assess
but the two most common are value
fundamentals. their influence on the economy.
Thematic Value investing
A fund manager may construct a A value investor is one who seeks to
portfolio by weighting it towards buy shares when they are underpriced
particular industries or sectors and to take profits when they appear
expected to benefit from overvalued. The Price/Earnings Ratio is
demographic, social or other changes. a key measure for the value investor.
This is known as thematic investing. Deep value refers to stocks with
particularly strong value
A country's economy is considered
before deciding in which industry to Volatile
invest. Economic conditions determine Volatile refers to a statistical method
which industries or sectors will that measures how much a series of
produce good returns and then values has moved up and down around
attractive stocks are bought within its average, known as volatility. The
those industries. higher the volatility, the less consistent
the historical performance has been.
For more information on the Skandia Ethical Fund please speak to your financial adviser.
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