Ethical Fund

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Ethical Fund

  1. 1. Investment Mana¯ement Ethical Fund brin¯in¯ the benefits of MultiMana¯er investment to ethical investors for financial advisers only
  2. 2. Skandia Skandia Ethical Fund 2
  3. 3. the problem with conventional ethical funds There is strong potential demand for This is entirely proper as many ethical company, or a pharmaceuticals ethical investment funds in the UK. investors will wish to avoid such company that tests its products on Many people apply ethical and sectors and companies. However, it animals, may still be deemed environmental concerns to other means that many ethical funds will unacceptable however well it treats areas of their lives, for example by tend to underperform when these its staff or the community. giving money to charities, buying Fair sectors do well. It was this 'conflict of Trade products, choosing organic capital and conscience' that led the The problem is compounded by the food or recycling household waste. Department of Trade to reject the fact that most ethical funds are run by first application for an ethical unit a single manager, and are therefore However, only a small minority put trust in 1973. This issue is as relevant unable to add value or diversify risk their money where there morals are now as it was then. through manager selection. Investors by investing in companies that help in these funds are caught by the rather than harm the planet, its One solution to emerge in recent 'double whammy' of a single manager people and its animals. This seems years is to 'accentuate the positive' fund unable to diversify between surprising given that the first ethical by investing in companies that have managers and an ethically restricted funds were launched as long ago as environmental or social policies, portfolio unable to select from the full 1984 and there are now more than support charities and the local spectrum of stocks. Furthermore, 50 ethical funds available to community and have good employee many ethical funds invest exclusively UK investors. relations. This is sometimes coupled in a single market, often the UK, and with an 'engagement' approach therefore do not benefit from Part of the problem stems from the which seeks to influence international diversification. way in which ethical funds invest. management to improve company Typically, an ethical fund will have behaviour. This enables many of the little or no exposure to sectors such newer ethical funds to invest in as Tobacco, Armaments or companies which were previously Pharmaceuticals, together with many 'off limits'. The fact remains, large Oil companies and Banks, however, that many ethical investors particularly those involved in Third still wish to avoid such companies. An World debt or oppressive regimes. arms manufacturer, a tobacco 3
  4. 4. Skandia Skandia Ethical Fund the skandia investment mana¯ement approach how we invest Skandia Investment Management There are two approaches to was founded on the key principle MultiManager investing - 'fund of that no single fund management funds' and 'manager of managers'. group can be the best in all areas at Funds of funds select from funds all times. Even the most admirable already available to retail investors, management groups will have while manager of manager funds periods of underperformance, invest in 'segregated mandates' because their investment style does which, in general, are only available not suit every market, or due to fund to institutional investors. manager changes or plain bad luck. Skandia's MultiManager approach is Skandia Investment Management's designed to diversify this manager solution is to combine both risk within and across investment approaches to offer 'the best of both markets. worlds'. By using both existing funds and bespoke mandates we can offer access to well known fund managers recognised as leaders in their field and other leading managers who may be less well known in the UK but are acknowledged as experts in their home markets. Skandia was named as Best Multi Manager Provider in the Money Marketing Awards 2006. 4
  5. 5. Our unrivalled access to world-class Managers are then monitored closely investment managers is only possible to ensure they remain the optimum through the size of our funds under choice, while the overall make-up of management and the negotiating the portfolio is kept under constant power it gives us. review with the aim of delivering more consistent performance within Our approach is to offer a range of each area. well diversified, carefully constructed portfolios, run by a We seek outperformance primarily range of world-class investment by using the most skilful managers managers. Managers are selected for rather than trying to 'second guess' their expertise in particular areas - markets or take major 'bets' on any where they are free to deliver strong particular sector (type of company), performance - while the overall size of stock or investment style as portfolio is managed to offset the we believe that this can introduce risks taken by each individual unnecessary risk into the portfolios. manager. Each fund is therefore carefully constructed by our team of experts - one of the largest in the industry - to provide a well balanced and high quality investment portfolio. 5
  6. 6. Skandia Skandia Ethical Fund now available to ethical investors The benefits of Skandia Investment The JPMAM mandate is Management's MultiManager complemented by holdings in three approach are now available to ethical existing ethical funds, which we investors through the Skandia Ethical regard as among the best in the field: Fund. • Aegon Ethical Equity Fund Skandia Investment Management has • F&C Stewardship Growth Fund appointed JPMorgan Asset • Norwich UK Ethical Fund Management (JPMAM) to manage (managed by Morley Fund around three-quarters of the fund Management). through a segregated mandate. The reason for this is that we want the Managers held within the fund majority of the assets to be managed by a leading mainstream global Norwich UK Ethical Fund manager, which we believe has (Morley) superior investment skills and 7% resources compared with many F&C Stewardship ethical fund managers. Growth Fund 7% Aegon Ethical Fund 7% JPMorgan Asset Management Ethical Mandate 79% Target allocation as at 1 March 2006. As the funds are actively managed, the actual allocations and managers are subject to change. 6
  7. 7. the ethical screenin¯ process Skandia's ethical investment criteria • Factory farming - companies • Banks - companies that operate are among the strictest available, involved in the rearing of animals substantial commercial lending because this is what we believe the in intensive conditions. operations will be excluded, unless majority of UK ethical investors are they can demonstrate significant looking for. • Environmental issues - companies positive initiatives (see positive will be excluded where their criteria overleaf ). The screening criteria applied to the activities have a significant directly invested portfolio (the negative environmental impact, • Gamblin¯ - companies whose JPMAM mandate) are under constant such as mineral extraction, oil and primary activity is the operation of review and will be adjusted to reflect gas production and chemicals, gambling facilities. changing circumstances and unless those companies can emerging concerns. The criteria also demonstrate positive responses to • Nuclear - companies that are apply to the Skandia Ethical Fund as a those impacts (see positive involved in the generation of whole and the retail funds must criteria overleaf ). nuclear power, or provide nuclear therefore satisfy the ethical criteria services to the military. for the fund. • Human ri¯hts - the portfolio will avoid companies with operations • Porno¯raphy - companies involved Reasons for excluding a company in developing countries and in the production or distribution of from the portfolio (the negative countries regarded as having pornographic material. criteria) are currently as follows: oppressive regimes where evidence is held of their • Alcohol - companies whose • Animal issues involvement, either by collusion or primary activity is the manufacture Animal testing - companies which complacency, in abuses of human or sale of alcoholic drinks. manufacture animal tested rights. cosmetics, industrial or household • Tobacco - companies whose chemicals, or pharmaceutical or • Armaments - companies that primary activity is the production healthcare products, or provide manufacture or sell weapons or or manufacture of tobacco products. animal testing services. weapons systems, or provide strategic components or services specifically for military use. 7
  8. 8. Skandia Skandia Ethical Fund Reasons for including a company in • Environmental mana¯ement - Skandia Investment Management the portfolio (the positive criteria) companies that apply a systematic employs a specialist firm called are currently as follows. The positive approach to the management of Ethical Screening Services to criteria do not override the negative their environmental impact determine which companies meet the but are used to distinguish between through, for example, ethical criteria. Ethical Screening companies if the negative criteria are environmental management Services has a team of dedicated passed. systems, auditing and reporting. analysts who research stocks worldwide on our behalf. Its list of • Employee relations - companies • Environmental products and permitted investments is sent to that operate equal opportunities services - companies whose Skandia Investment Management and policies or abide by codes of products and services produce to JPMAM on a monthly basis. If a conduct regarding labour environmental benefit, such as company held by the fund no longer standards throughout their pollution control systems, waste meets the criteria, the stock will be operations. management and recycling sold in a timely and ordered manner. services, renewable energy and • Social issues - companies that public transport. provide socially beneficial products and services, such as social housing, home care and nursing, or demonstrate outstanding commitment to the communities in which they operate. 8
  9. 9. 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 size bias, underperforming when they are no leading managers in their fields, but compared with the average ethical longer in vogue. The Skandia Ethical also that they offer complementary fund. By blending the four managers Fund cannot eliminate this risk investment approaches. in this way, we are able to balance entirely, but seeks to minimise it by investment styles and spread risk, diversifying the portfolio with the aim of reducing volatility internationally and across managers. and increasing potential returns. Ethical blendin¯ Size Large JPMAM NU Style Value Growth F&C AEGON Small For illustrative purposes only, comparing the Skandia Ethical Fund with other ethical funds. Source: Skandia Investment Research 9
  10. 10. Skandia Skandia Ethical Fund availability The Skandia Ethical Fund is Skandia's Ethical Life and Pension managed by Skandia Investment Funds and Royal Skandia's Ethical Management Limited, a dedicated Fund are wholly invested in the investment company within the unit trust, although you should Skandia UK Group. The Skandia note that the performance of the Ethical Fund is a unit trust which is life company funds will not mirror available direct from Skandia the performance of the underlying Investment Management Limited fund because of the life company and through Skandia MultiFUNDS, fund charges, taxation adjustments MultISA and MultiPEP. and the life company investment process. 10
  11. 11. profiles of investment mana¯ers held Terms in italics are defined in the ¯lossary of terms on page 15. JPMorgan Asset Mana¯ement For stock selection, Howard Williams Ethical Mandate applies an ethical overlay to JPMAM's global best ideas portfolio. The regional analysts use a proprietary quantitative ranking tool for ideas generation, which favours stocks with A diversified portfolio of 60 to 70 momentum and value. Shares are stocks, driven by a strong philosophy scored between one and five which seeks to exploit market depending on the strengths exhibited inefficiencies. for the various characteristics - a score Fund Manager - Howard Williams. of five means the company is highly rated. JPMorgan Asset Management (JPMAM) have a respected, well Whereas a typical ethical fund manager organised and well resourced team will tend to have a persistent emphasis of global sector analysts all of whom towards smaller companies and growth are located in London, which aids stocks, JPMAM seeks to run a more communication of ideas and balanced approach across company consistency of approach. The team sizes, countries and investment styles. is backed by an organisation that This philosophy ensures a balanced provides support in terms of systems, portfolio with good growth and value people and management. The characteristics. resources are organised in such a way that the ethical portfolio managed solely for Skandia receives a high level of management. 11
  12. 12. Skandia Skandia Ethical Fund 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's previous mainstream fundamentals, valuation measures and experience in smaller companies is also technical drivers. Not only is there no brought to bear. Aegon takes its A diversified portfolio of 80 to 100 distinct style bias, the process also corporate responsibilities seriously and securities resulting from a pragmatic amalgamates top-down macroeconomic is a more active shareholder than many philosophy focusing on three key work with bottom-up stock picking. ethical 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 to any course of action, which ensures consistency. 12
  13. 13. Norwich UK Ethical Fund The process is built around rating (Morley) 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 40 investment returns. to 60 stock portfolio. The process starts with a thematic Fund Manager - Peter Michaelis. analysis. This involves reviewing key Morley 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. The focus is to and with one of the largest and most identify the social and environmental experienced teams in the industry. The factors that will have the greatest team believe that SRI will help alleviate impact at the financial level for the poverty and environmental destruction company. These are then rated on and at the same time deliver above 'business sustainability' and 'visions average investment returns. and strategy'. A portfolio of 40 to 60 stocks is then constructed from the positive stock selection that results from the sustainable ratings matrix. 13
  14. 14. Skandia Skandia Ethical Fund & F&C Stewardship Growth Fund The investment process combines The fund has a growth bias, with a bottom-up stock selection and focus upon IT, Media and Healthcare top- down macroeconomic input. names. The screen ensures that The analysts rate stocks A to D, based currently only one stock (Vodafone) in on long-term fundamental analysis of the top ten is permissible, with just 35 industry and company factors, and 1 to of the FTSE 100 qualifying. This results A pragmatic style, which has allowed 4 depending on expected six month in a fund with an emphasis towards the manager to rotate between growth performance relative to sector, A1 small and medium sized companies and value, and a permanent emphasis being the highest rating. with most of the stocks rated A1 to B2. towards small and medium sized The SRI team of ten, source their companies, has enhanced the information from EIRIS, in addition to performance returns for this well frequent meetings with company diversified fund of 100 to 120 stocks. management. A Responsible Fund Manager - Ted Scott. Engagement Overlay takes the process F&C is the largest Ethical/SRI manager a step further, whereby all company in the UK, managing in excess of contacts and voting and the issues and £2 billion of the £5.5 billion total concerns discussed with management assets in such funds. Ethical are published quarterly. In addition, the investment is a long standing offering SRI research team is also heavily from the group, of over twenty years, involved in Corporate Governance. and is a profitable and core part of the business. 14
  15. 15. ¯lossary of terms Bottom-up analysis Macroeconomics Thematic The search for outstanding Economic analysis concerning broad A fund manager may construct a performance of individual stocks trends and influences on the economy, portfolio by weighting it towards before considering the impact of such as the interaction of fiscal and particular industries or sectors economic trends. The companies may monetary policies, Gross Domestic expected to benefit from be identified from research reports, Product (GDP), balance of payments demographic, social or other changes. stock screens etc. (As opposed to etc. As opposed to microeconomics This is known as thematic investing. top-down analysis). which focuses on individual units such Top-down analysis as companies and markets to assess Fundamentals A country's economy is considered their influence on the economy. Information relating to the economic before deciding in which industry to well-being of a company such as Quantitative analysis invest. Economic conditions determine revenue, earnings, assets, liabilities and An approach to investment which industries or sectors will growth. These factors are used to management which seeks to use produce good returns and then determine the worth of an investment statistical or numerical methods, rather attractive stocks are bought within in fundamental analysis. A company than more subjective (or qualitative) those industries. with little debt and a lot of cash is factors. Value investin¯ generally considered to have strong Style A value investor is one who seeks to fundamentals. The investment approach a manager buy shares when they are under priced Growth investin¯ takes to achieve his or her objectives. and to take profits when they appear A strategy in which an investor seeks There are many different kinds of style, over valued. The P/E (Price/Earnings out stocks deemed to have good but the two most common are value Ratio) is a key measure for the value growth potential. In most cases, a and growth. investor. Deep value refers to stocks growth stock is defined as a company with particularly strong value whose earnings are expected to grow characteristics. at an above average rate compared with its industry or the overall market. 15
  16. 16. This document is printed on Cyclus paper which is a 100% recycled paper, where printed by Skandia. Environmental statement: • National Association of Paper Manufacturers approved. • Nordic Swan accreditation for low emissions during production. • Awarded the German Blue Angel recycled mark. • All residual products are environmentally friendly being used for paper fibres, fertiliser and as raw material for the building industry. This document is designed for use by professional financial advisers only and should not be relied upon by existing or prospective clients of Skandia. Calls may be monitored and recorded for training purposes and to avoid misunderstandings. Skandia Life Assurance Company Limited (an incorporated company limited by shares) Skandia MultiFUNDS Limited, Skandia Investment Management Limited Registered Office: Skandia House, Portland Terrace, Southampton, SO14 7EJ, United Kingdom. Registered numbers: 1363932, 1680071, 4227837 England All companies authorised and regulated by the Financial Services Authority FSA Register numbers 110462, 165359, 208543 Royal Skandia Life Assurance Limited (an incorporated company limited by shares) Registered number: 24916 Registered and Head Office: Skandia House, King Edward Road, Onchan, Isle of Man, IM99 1NU, British Isles. 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 SK3939/26-0400 000000000000000

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