When it comes to sentiment towards ethical investing, Simon Wood reckons momentum lies with the increasing number of people who realise sustainability is important for the future of the planet rather than climate sceptic Donald Trump.
Wood says that while negative press coming out of the US could drive negativity towards sustainability, more and more people are becoming aware of ethical investing products. His £58.3m Aberdeen Multi-Manager Ethical fund has annualised returns of 11.9 per cent and 11.3 per cent respectively over three and five years and is top quartile in both periods, albeit in what Wood calls the “mish-mash” Specialist sector. Wood began managing the portfolio in April 2014, but it was launched in 2002. “There are a few old favourites – Jupiter Ecology is nearing its 30th year – but there definitely wouldn’t have been quite so many funds at that stage.”
It’s the first ethical strategy Wood has managed. “Really it’s the same criteria as the other funds I’ve managed for the last 20-plus years. You want to find good managers, you want to give them some capital and let them get on with managing it. I always like managers that have an eye to the downside.”
The fund invests across the ethical spectrum, from negatively screened “dark green” funds to “light green” sustainable investing products. “At the dark green end we have Kames Ethical and moving up we have SAM Smart Materials, First State Worldwide, then Impax Environmental Markets and WHEB, plus Pictet Environmental Megatrend.”
It is equity only at the moment, but Wood points out that fund houses are releasing more “bond-type products” and Jupiter brought out a multi-asset sustainability vehicle last year. “If I had to choose between equity and bonds at the moment, I would choose equities. We would look at it, but this fund is more at the higher risk end of our range of portfolios.”
There is little crossover between the underlying funds in the ethical strategy and the other multi manager funds that Wood also manages. “Those ones are run more in line with benchmarks, so if you put a mega trend in or a global-type fund it’s very hard to get your asset allocation calls correct,” Wood says. “Kames Ethical is in the UK All Companies sector, and let’s not pretend it hasn’t had a tough time recently, but it’s longer term numbers are pretty good and compare favourably against others in the sector.” However, he notes ethical funds were at a disadvantage in 2016 due to the oil and financial rallies.
Wood likes the passion he sees in ethical fund managers, but says: “They’ve obviously got to be able to separate their enthusiasm for a stock.” He points to Tesla as an example. “The idea’s great, but how is the valuation? Both have to be brought together before a decision is made.”
European fund managers are strong when it comes to ethical investing, Wood says, listing Pictet, Robecco, Allianz and Candrium as leaders in the space. The UK might follow in their footsteps, but for now he’s happy being the only ethical multi-manager fund. He has little to say on the impact of the upcoming merger with Standard Life for the strategy. “It’s just at the board level at moment, I would think we’re a little further down the food chain.”
The fund has already been added to more platforms this year due to adviser demand, although Wood says he does not know the demographics of the underlying investors and why they are interested in an ethical strategy. “It would be nice to think younger people are more aware of that sort of thing so that it’s a longer-term trend. I think it would be fair to say more and more people are becoming aware of it.”