Spotlight on Aegon Ethical Equity fund
2009 is shaping up to be a big one for the Aegon Ethical Equity fund. Earlier this year, the fund celebrated its 20th anniversary, while Audrey Ryan celebrated managing the fund for a decade.
Also of importance was Ryan's success in January at edging out Liontrust's Jeremy Lang as premier fund manager in the UK all companies sector in Moneywise's sister publication, Money Observer's, awards.
At the end of 2008, experienced fund mangers such as Lang and Neptune's Robin Geffen were knocked sideways by horrendous stockmarket conditions. Despite running one of the strictest ethical funds in the UK (it can invest in less than half of the FTSE 100 companies), Ryan was our surprise replacement for Lang as she came up trumps in the sector and gained a place in Money Observer's premier league, which she still holds.
So how is the fund looking now? It has recorded some decent long-term performance, giving investors a 58% return over the past seven years and putting it in the top quartile. However, the recession has caused a lot of misery for the £185 million fund.
It has plummeted to the bottom quartile over the past month, six months and year. In the six months to 1 August, it delivered just 11%, while the top performing fund in the sector posted a whopping 60% return.
Funds that invest in environmental projects and are proactive in talking to companies about their corporate governance are in demand from investors wanting to do their bit for the planet and make the corporate baddies behave more responsibly.
But the same can't be said for the so-called dark green funds, that screen out everything from drinks companies such as Diageo to supermarkets such as Tesco.
And Ryan's fund is incredibly dark green. If a fund is light green, it means it does some light screening, but can still invest in a fairly wide universe. Dark green funds have stricter criteria and screen out more companies.
Ryan even thinks her fund is darker green than the F&C Stewardship range - the UK's first ethical funds, set up by Friends Provident, which has its roots as a Quaker company.
A company called Ethical Investment Research Service first screens out unsuitable stocks for the Aegon ethical team, and then Ryan's colleagues apply their own screen over the top. The fund is banned from investing in companies that meet any of their 12 criteria, which includes banks, environmentally unsound companies (such as those producing hazardous pesticides) and nuclear power firms.
Ryan's job is to then pick companies to invest in from the rather short list her colleagues present her with. Five people work on the ethical team, and Ryan proudly notes that they have all been at Aegon for at least eight years.
From the list, Ryan looks for companies with strong balance sheets and earnings resilience. Because a lot of big companies are ruled out, Ryan often heads into the realm of small and medium-sized stocks to find value - indeed, 45% of the portfolio is invested here.
Mother-of-two Ryan is not the vegan hippy you might expect her to be. Yes, she has some of her money invested in the fund, but she also confesses to enjoying a glass of wine, driving a car and travelling by plane.
She also runs Aegon's UK Opportunities fund, so is fully aware of how frustrating her trimmed-down list of ethical stocks can be.
"I've been penalised by not having large banks or miners in the fund," she says. "A lot of the returns over the past 12 months have come from those sectors, so I've really missed out.
"On the other hand, having no exposure to pharmaceuticals has been good for the fund. It's swings and roundabouts."
Ryan says the most difficult time for the fund is when the "big caps and defensives" are doing well: "I have to think: can I capture that performance in other companies? Sometimes I can, by investing in healthcare and the support sector, for example. But I never quite catch up on all that performance."
At the moment Ryan is reinvesting some cash (last year the fund's cash position hit 13%, it's now 5%) by dipping her toes in some recovery stocks, such as in the household and consumer sectors. She also likes recruitment firms Robert Walters and Michael Page International. "We are very mindful of unemployment though," she says.
Despite not being able to hold banks, Aegon Ethical Equity is very overweight in general financials. Brewin Dolphin, Hargreaves Lansdown and Schroder are all held in the fund.
Ryan's peers at F&C Stewardship recently decided to allow banks into their fund. Is she ever tempted to tinker with Aegon Ethical Equity's stringent criteria to help plump up performance?
Ryan admits to discussing this with her team, but she says banks will not be permitted because "our clients won't like that and we don't want to change what we do".
This article was originally published in Money Observer - Moneywise's sister publication - in October 2009.
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.