Good performance in small and medium cap companies is being reflected in the performance statistics ...
Good performance in small and medium cap companies is being reflected in the performance statistics for ethical portfolios.
Ethical funds have a natural tilt away from large stocks as these companies, by virtue of size, are more likely to have breached the criteria for ethical portfolios. The pick-up in the UK economy has had a positive effect on the performance of small and mid cap stocks. In the year to date the FTSE 100 is up 9.57% against 24.58% for the FTSE Mid 250 and 32.07% for the FTSE SmallCap.
Over the past three months on an offer to bid basis, the average rise in the UK All Companies sector has been 4.5%, compared with 4.9% for the UK Specialist sector, where most trust ethical funds are now placed.
Simon Baker, manager of the Ecology unit trust at Jupiter, says his portfolio has benefited from the broadening of the market. However, the Ecology Fund - which aims for capital appreciation from companies involved in pollution control and environmental protection worldwide - does not invest in oil or big banks and has suffered now these sectors are performing well.
Baker says one of the most promising areas in the portfolio is in the water and water waste treatment companies. He has investments in the UK and abroad to back this theme.
He adds: "There are plenty of water problems throughout the world and there are likely to be more to come. We can expect significant growth from companies geared toward such problems."
Baker is focusing on holdings which have a realistic chance of being included in the FTSE 250. He says: "Bus builder Henley and Whatman, which is associated with membrane filtration, are knocking on the FTSE 250 door."
Richard Lowman, manager of the Friends Provident Stewardship unit trust, says his fund, which selects UK companies whose products and operations are of long-term benefit to the community, has benefited from the good performance trend in smaller companies over early 1999. He says: "We've been keen on the construction sector. Property has done us quite well, it has been the beneficiary of falling interest rates."
Another main area of asset allocation is technology, which is now at a neutral level after it was trimmed from an overweight position earlier this year, reflecting poor performance in the sector.
Lowman adds: "We have also invested in some of the medium-sized banks, however if interest rates continue to fall, profits will be affected so we will look at reassessing our allocation in this area." The Friends Provident Sterwardship Unit Trust's top three holdings are Next, BG, and Centrica.
Mark Williams, Environ Trust fund manager at CIS, says the resurgence in small cap companies has been reflected in the performance of the UK portion of the portfolio, which accounts for 75% of assets. This improved performance in the fund is however partially offset by the effects of the weak euro, 20% of the fund being invested in continental Europe. The remainder of the poprtfolio is invested in North America, with about 2% cash.
The fund is heavily overweight in the capital goods sector, which he says lends itself to ethical stock selection and is in line with the trend of good performance in small to medium cap companies. He cites First Technology which markets products such as car crash test dummies and Britax International, which markets car seats for children, as promising stocks. Principal holdings in the CIS Environ Trust include Glaxo Wellcome, SmithKline Beecham, BT and Nestor Healthcare.
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