brin¯in¯ the benefits of
MultiMana¯er investment to
for financial advisers only
Skandia Skandia Ethical Fund
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
Skandia Skandia Ethical Fund
the skandia investment
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
Skandia was named as Best
Multi Manager Provider in the
Money Marketing Awards 2006.
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.
Skandia Skandia Ethical Fund
now available to
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:
• 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
Target allocation as at 1 March 2006. As the funds are actively managed, the actual allocations and
managers are subject to change.
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.
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
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.
For illustrative purposes only, comparing the Skandia Ethical Fund with other ethical funds.
Source: Skandia Investment Research
Skandia Skandia Ethical Fund
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
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
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
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
whole team to any course of action,
which ensures consistency.
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.
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
¯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
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.
generally considered to have strong
Style A value investor is one who seeks to
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.
This document is printed on Cyclus paper which is a 100% recycled paper, where printed by Skandia.
• 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.
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