All interested parties need to take responsibility to ensure the best results from SRI, according to...
All interested parties need to take responsibility to ensure the best results from SRI, according to Amanda Forsyth of Standard Life.
This includes the investor, trustee of the fund, inhouse analyst and the fund manager.
'When you take on an ethical fund, you are taking on something different,' said Forsyth. 'People want an ethical or SRI fund because they have views and sometimes they are strong views.
'We need to focus on their goals. Do they want an exclusive approach to avoid certain areas of the market, or do they want to make sure they have the shareholding so they can talk to management? The balance between these two will affect performance.
'Investors know the issues. Fund managers are trying to achieve the best possible returns in a dynamic atmosphere and our analysts need to maximise the information they receive. All those involved in the SRI investment process should take responsibility for it.'
If a fund is going for exclusion, it has to reflect investor views, Forsyth continued. 'We ask ethical investors annually about what they want,' she said. 'Our UK Ethical fund is toward the dark green end. With roughly 50% of the FTSE 100 excluded, it has a tracking error of more than 10. But just because you cannot buy some areas, does not mean you cannot play themes. You may not be able to buy tobacco, for example, but you can buy food retailers, supermarkets and other defensive companies.
'The inclusive approach is when you want a shareholding and go in and bang on the table. This is an area consulting actuaries would prefer funds to be because it is less risky on most standard measures.'
Forsyth said the process should not have a direct impact on fund performance but drive an idea of best practice and the issues that are important.
'Our way of working is to put a lot of market information through a screening process,' she added. 'We focus on 14-15 factors that affect share price performance and back this up with qualitative analysis. We have a 2% market share and that gets us on the share registers of most firms. Because of that clout, we have more responsibility than our peers in SRI.
'Our broad SRI theme is about consulting with companies and trying to ensure they adopt best practice. Within the bounds of confidentiality, we are open about what we are doing.'
That means every fund manager and analyst must know what the issues are, Forsyth said. From there, SRI can pull out the best of both worlds in terms of ethics and investment performance, she added.
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