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ethical fund

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  • 1. ethical fund investment brin¯in¯ the benefits of multimana¯er to ethical investors ¯uide for investors
  • 2. 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 9 availability 10 manager profiles 14 glossary of terms 2
  • 3. 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 3
  • 4. our approach to investment mana¯ement 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.
  • 5. the skandia ethical fund The Skandia Ethical Fund offers mana¯ers held within the skandia ethical fund all the benefits of our MultiManager approach. 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 global manager. Aegon Ethical 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. 5
  • 6. the ethical screenin¯ process 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. 6
  • 7. • 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. 7
  • 8. 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 potential returns. ethical blendin¯ company size Large JPMAM NORWICH investment style Value Growth AEGON IMPAX Small For illustrative purposes only, comparing the relevant positions of the Skandia Ethical Fund’s component managers. Source: Skandia Investment Research 8
  • 9. availability 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. 9
  • 10. mana¯er profiles 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. inefficiencies. 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 management. 10
  • 11. 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 environment. whole team on any course of action, which ensures consistency. 11
  • 12. 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. 12
  • 13. 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 also used. 13
  • 14. ¯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 Quantitative analysis 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 Style 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. and growth. 14
  • 15. 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 Top-down analysis characteristics. 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. 15
  • 16. 00000 For more information on the Skandia Ethical Fund please speak to your financial adviser. Skandia Investment Group is part of the worldwide Skandia Group, itself owned by Old Mutual plc. Old Mutual plc is a public company limited by shares, incorporated in England and Wales under registered number 3591559. Registered Office: 5th Floor, Old Mutual Place, 2 Lambeth Hill, London, EC4V 4GG. This material is issued by Skandia Investment Management Limited, a member of the Skandia Group. www.skandia.co.uk www.skandiainvestmentmanagement.com www.royalskandia.com Calls may be monitored and recorded for training purposes and to avoid misunderstandings. Selestia Investment Solutions investment platform gives you access to an ISA and Collective Investment Account provided by Skandia MultiFUNDS Limited, a Collective Retirement Account and Collective Investment Bond provided by Selestia Life & Pensions Limited and an Offshore Collective Investment Bond distributed by Skandia MultiFUNDS Limited for Old Mutual International (Guernsey) Limited. Skandia fund platform gives you access to MultISA and MultiFUND provided by Skandia MultiFUNDS Limited and to products provided by Skandia Life Assurance Company Limited. Skandia Life Assurance Company Limited, Skandia MultiFUNDS Limited, Skandia Investment Management Limited and Selestia Life & Pensions Limited are registered in England & Wales under numbers 1363932, 1680071, 4227837 and 4163431 respectively. Registered Office at Skandia House, Portland Terrace, Southampton SO14 7EJ, United Kingdom. All companies are authorised and regulated by the Financial Services Authority with FSA register numbers 110462, 165359, 208543 and 207977. VAT number for all above companies is 386 1301 59. Old Mutual International (Guernsey) Limited is regulated by the Guernsey Financial Services Commission and is licensed to write long-term business under the Insurance Business (Bailiwick of Guernsey) Law 2002. Registered number 2424. Registered Office at Fairbairn House, PO Box 121, Rohais, St Peter Port, Guernsey GY1 3HE, Channel Islands. Royal Skandia Life Assurance Limited is registered in the Isle of Man under number 24916. Registered and Head Office: Skandia House, King Edward Road, Onchan, Isle of Man, IM99 1NU, British Isles. Phone: +44 (0)1624 655 555 Fax: +44 (0)1624 611 715. Authorised by the Isle of Man Government Insurance & Pensions Authority. Authorised and regulated by the Financial Services Authority for business conducted in the UK. Some of the FSA’s rules do not apply to non-UK based insurers. FSA Register number 142309. www.fsa.gov.uk/register. When printed by Skandia this item is produced on a mixed grade material, which uses a combination of recycled wood or paper fibre from controlled sources and virgin fibre sourced from well managed, sustainable forests. PDF3939(interim)/29-0285/May 2009