Join our community of smart investors

Enjoy clean outperformance with Standard Life Investments UK Ethical

Standard Life Investments UK Ethical makes strong returns and meets ethical criteria
May 22, 2019

What was once a cause for do-gooders is now seen as a way to mitigate risk. Companies that breach environmental, social and governance (ESG) standards are increasingly considered by fund managers to be an investment risk because violating these standards can affect a company’s performance and market value.

IC TIP: Buy
Tip style
Growth
Risk rating
High
Timescale
Long Term
Bull points

Long-term outperformance

Rigorous investment process

Diversified exposure

Meets ESG criteria

Bear points

Volatility

If you also want to try to mitigate these risks, it could be worth adding a fund that seeks to screen them out. Standard Life Investments UK Ethical Fund (GB00B6Y80X40), which has been managed by Lesley Duncan since June 2004, looks like a good option.

Not only do its investments meet a number of ESG criteria, but it has also delivered strong total returns over the long term – well ahead of many of its sector peers and the FTSE All-Share index. Over five and 10 years, the fund has made total returns of 48 per cent and 241 per cent, against 33 per cent and 160 per cent for the FTSE All-Share index, and the Investment Association (IA) UK All Companies sector averages of 34 per cent and 163 per cent.

The fund aims for capital growth by mainly investing in UK equities alongside a few overseas holdings listed in countries such as the US.

Ms Duncan and her team judge potential investments on 13 criteria, including factors such as value, momentum, balance-sheet-related variables, key drivers of businesses and potential threats. Stocks that meet these criteria are then put through an ethical screening process. A negative screen determines whether the stocks are acceptable for investment, and the stocks are also assessed to see whether they meet a number of positive criteria. The investment team also conducts a survey every year to ensure its ethical screening process meets the fund's investors' ethical criteria.

Ms Duncan aims to hold as many of Aberdeen Standard Investments' wider UK team’s top 20 ideas from the FTSE 350 as possible. The fund can also invest up to 20 per cent of its assets in Aim stocks such as its largest holding Fevertree Drinks (FEVR).

Due to its ethical screens this fund avoids certain sectors, for example oil and gas, mining and tobacco, which means its performance can differ quite significantly from broad UK equity indices such as the FTSE 100. The fund also has half of its assets in mid-caps, which can be more volatile than larger, more stable companies. And the fund’s screening method has a growth bias, meaning that if this investment style is out of favour the fund could underperform.

But Ms Duncan tries to mitigate these risks by investing the fund's assets, which are worth about £337m, in 50 to 100 stocks, meaning it is well diversified.

“She has a strong sell discipline, which also lowers stock-specific risk as she will sell quickly if fundamentals reverse,” adds Darius McDermott, managing director of research company FundCalibre. “And she also has access to a specialist risk team that monitors the portfolio to make sure no unintended biases or tilts come into the portfolio.”

So, if you want strong growth over the long term while avoiding the risks of breaching ESG standards, Standard Life Investments UK Ethical's strong performance, and rigorous stock selection and risk control processes, mean it still looks like a good option. BUY. ZB

 

Standard Life Investments UK Ethical Fund (GB00B6Y80X40)

 

PRICE:111.8pMEAN RETURN:11.78%
IA SECTOR:UK All CompaniesSHARPE RATIO:0.69
FUND TYPE:Open-ended investment companySTANDARD DEVIATION:15.47%
FUND SIZE:£336.61mONGOING CHARGE:0.9%
No OF HOLDINGS:73*YIELD:1.69%
SET-UP DATE:20 September 1998*MORE DETAILS:aberdeenstandard.com
MANAGER START DATE:1 June 2004*  
Source: Morningstar & *Aberdeen Standard Investments as at 30 April 2019.

 

Performance
Fund/benchmark1-year total return (%)3-year cumulative total return (%)5-year cumulative total return (%)10-year cumulative total return (%)
Standard Life Investments UK Ethical-3.5934.748.45241.35 
FTSE All-Share index-1.9833.4733.29160.02 
IA UK All Companies sector average-3.0928.6833.78163.47 
Source: FE Analytics as at 17 May 2019

 

Top 10 holdings (%)
Fever Tree3.5
Boohoo3.5
Bellway3.2
NMC Healthcare2.90
Prudential2.70
Polypipe2.50
Howden2.4
Redrow2.2
Sanne2.2
Aveva2.1
Source: Aberdeen Standard Investments as at 30 April 2019

 

Sector breakdown (%)
Industrials23.6
Consumer services21.30
Financials17.90
Consumer goods12.20
Technology10.30
Health care5.20
Cash5.10
Telecoms3.40
Oil & gas1.00
Source: Aberdeen Standard Investments as at 30 April 2019