Advisers have to take account of more than just financial performance when dealing with clients want...
Advisers have to take account of more than just financial performance when dealing with clients wanting to invest in ethical funds, according to Ted Scott of Isis Asset Management.
'Investment is important but not vital to investors in ethical funds and there are other issues that can be relatively overlooked by the market and investment community, ' he said.
Isis' Stewardship fund is a so-called dark green fund and based on an annual survey of its unit holders, it found that only 5% invested in the fund for financial reasons. Scott said: 'That is not surprising because we have one hand behind our back and can't take advantage of sectors like tobacco that have soared in past two years.'
He believes the two main reasons for investing in dark green funds are ethical criteria and then influence or engagement.
'Screening is viewed as a negative as dark green funds exclude what they consider to be unethical but there is a positive side as well,' he said. 'We try to favour companies with good human rights records, environmental policies and human relations principles. It is a combination of positive and negative that determines what gets on the acceptable list. '
This filter is critically important, said Scott. 'In the pharmaceutical sector for instance, we are not allowed to invest in any company. Medium and light green funds can because they make drugs to help people. We cannot invest because they test on animals. This is a very emotive area and one that is very important to investors in dark green funds. This applies other sectors as well. It is very important to remember why people invested in a dark green fund in the first place, and the criteria is one of the most significant reasons.'
Scott said engagement is also important because it is about trying to prevent things happening and this is another reason people invest in ethical funds ' they believe they are making the world a better place by doing so.
One problem he said is that with so much of the market excluded, biases occur in the make -up of some funds.
'Around 75% of FTSE All- Share is unavailable to us so that makes unavoidable biases,' he said. The first bias is towards growth stocks and usually in TMT and support services, which are all are available to dark green funds because they are involved in sustainability and in industries for the future such as renewable energy and technology, added Scott.
Smaller caps are another bias. The three big sectors ' oil, banks and pharmaceuticals ' are out of bounds so 70% of stewardship fund is invested in small mid-cap area.
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