Does being ethical give you good returns?

Christine St Anne   |   15/10/2012 Text size  Decrease  Increase   |  
email_fwd

Christine St Anne: Ethical investing is a top of investment strategy, but does this feel-good approach net good returns for investors? Today, I am joined by Westpac's David Simon to give us the low down on ethical investing. David, welcome.

David Simon: Thank you, Christine.

St Anne: David, what exactly is ethical investing? Does it differ from sustainable investing?

Simon: These themes are thrown across all the time. They are actually the same theme. So ethical investing and sustainable investing mean the same thing. Basically, it's the underlying fundamental values of the investor seeking to invest in assets that has sound attributes when regarding factors such as the social impact or the political impact and indeed the environment meant to impact of the underlying investment security.

St Anne: Can this investment approach result in better returns for investors?

Simon: The general view is that by scoping out certain assets that don't meet the merit of being sustainable or ethical means that they tend to underperform more mainstream investments. A recent survey that was produced in 2011 by the Australian Responsible Investing Association of Australasia actually came out with an interesting finding stating that for several periods the sustainable style investing is actually up for the mainstream investing. So that was quite an interesting report that was delivered.

St Anne: David, a lot of our investors like resource companies. Can these type of companies be included in an ethical portfolio?

Simon: That's a really interesting one, because underlying fund managers have different criteria on how they assess a company to be ethical or not. So some companies operate under a positive screening process and that means the fund manager is actually looking for positive attributes of an underlying security on how they provide positive impacts on society and also the environment, whereas some fund managers actually look for a negative screening process.

So they are really focused on some of the negative impacts that some companies can display on social and also environmental factors. So it's quite difficult to just use the resource component as an area or reason why to scope out some of the assets within a portfolio of ethical investments, but overall, depending on the fund manager, you can still access some resource companies within an ethical portfolio.

St Anne: David, you mentioned managed funds. Is this the best way for investors to access this type of investment?

Simon: Well, accessing investments through a theme of being ethical and sustainable are access to the same vehicles of what you would normally access any mainstream investment, whether they are listed or indeed via a managed fund or even held directly.

So there is no differentiation in terms of how to access these, but interestingly, a recent survey only showed that 1.6 per cent of total investment funds under management are held within ethical or sustainable style of themes. So there is still a lot of interest out there, but that's yet to materialize in actual investment holdings.

St Anne: David, finally what about diversification issues?

Simon: Yes, certainly. You'll find that if you look at a portfolio of assets that have these attributes of sustainable and ethical, there is a wide stream of assets to choose from. There are the obvious ones that you’d have to scope out. So companies that operate within – in weapons or companies that generally operate with tobacco and alcohol are somewhat screened out away from the opportunities say that deliver these types of values and attributes.

What that means is that the investor isn't going to get the same level of diversification. They would if they did go down that mainstream approach. So they need to sort of be conscious about whether they really more focus on the ethical component or their overall investment needs and diversification requirements.

St Anne: David, thanks again for your insights today.

Simon: My pleasure. Thank you.

Video Archive...

How appealing are Asian stocks?
02/07/2020  China’s ongoing recovery from COVID-19 presents solid investment opportunities, says Nikko Asset Management.
3 top picks in water and waste
26/06/2020  They may be 'boring' says Fidelity's Bertrand Lecourt but these names offer solid and long-term returns by delivering essential services.
Dividends: ‘You have to be very active in stock selection’
23/06/2020  Yield can still be found among global healthcare, technology and consumer staples despite the dismal dividend outlook, says Janus Henderson’s Jane Shoemake.
Airlie went shopping during COVID sell-off
22/06/2020  COVID has given consumers the "fright of their lives" but this fund manager took the opportunity to scoop up bargain bluechips, says portfolio manager Matt Williams.
3 top picks: miner, insurer, fueler
19/06/2020  Mineral Resources, Medibank Private and Ampol are among Airlie Fund Management's preferred stocks, says portfolio manager Matt Williams.
3 stocks set to clean up
18/05/2020  The biggest corporate hygiene company you never heard of; Dettol's parent company; and a lab supplier are tipped to benefit post-coronavirus.
Greencape's three top picks
13/05/2020  Property listings, software for financial planners and AI machine-learning: Jonathan Koh has scoured the globe for opportunities.
Surprises from Berkshire's annual meeting
05/05/2020  Morningstar's Gregg Warren discusses the meeting's cautious tone, Berkshire's lack of buying during the downturn, and unloading the airlines.
Avoiding all eggs in the same basket
02/04/2020  Get the full effect of diversification by considering the correlation of your assets with these tips from Morningstar's Director of Investment Research, Ian Tam
‘A modest sell-off, not a panic’: Douglass on coronavirus fallout
14/03/2020  The Magellan co-founder insists now is not the time to ditch stocks for cash nor to buy bargains, and global businesses won’t turn their backs on China.
Avoid panic-selling: Douglass calls for calm
12/03/2020  Share market speculation is almost always a bad idea, and panic-selling stocks on coronavirus fears is an example of just that, warns Magellan boss.
Coronavirus and the market: our take
11/03/2020  We offer three takeaways and advice on staying true to your goals.
Green bonds offer another side to ESG investing
05/03/2020  Investors are largely unaware of the role fixed income can play in expressing their views on social, environmental and governance issues.
Morningstar's tribute to Jack Bogle
29/01/2020  There has never been anyone who has given more to investors and taken less in return than Jack Bogle.
Morningstar year in review 2019
23/12/2019  Morningstar analysts look back at a year marked by a plunge in interest rates, shocks for the banking sector, China's vast appetite for iron ore, and the Coalition's upset election win.
3 top picks: medical tech, bank and telco
16/12/2019  US President Trump’s trade war with China is a telco tailwind for Ericsson, says Fidelity’s Amit Lodha, who also likes medical technology firm Boston Scientific and Indian bank Kotak Mahindra.
Investors hunting for 'Switzerland'
13/12/2019  Investors are scrambling for safety as geopolitical tensions fuel the hunt for investable countries and ideas, says Fidelity’s global portfolio manager Amit Lodha.
Don’t abandon stocks amid rising market risk
11/12/2019  Low interest rates and a generally gloomy investment outlook magnifies the importance of picking quality, defensive companies for your portfolio, says Investors Mutual’s Hugh Giddy.
Where in the world can stock investors find value?
06/12/2019  US stocks hold only sparse opportunities for investors but parts of emerging Asia such as Korea and Japan are attractive, says Morningstar’s Daniel Needham.
Understanding Morningstar Sustainability Ratings
12/11/2019  A Morningstar Sustainability Rating for funds helps investors make comparisons across industries and better understand and manage total ESG risk in their investments.
History doesn't repeat, but it rhymes
01/10/2019  Lower for longer interest rates, slowing economic growth and a paucity of yield opportunities are nothing new for this seasoned professional Australian stocks investor.
Navigating the risks in credit allocation
27/09/2019  In a lower-for-longer world, understanding the liquidity risks in credit becomes even more vital, says Charlie Jamieson of JCB.
Women still lag men in retirement saving. Why?
26/09/2019  Judith Ward from T. Rowe Price reveals which cohorts need to pay more attention to what's happening with their assets - and what they can do.
Investors are in the eye of the storm
17/09/2019  Markets have weathered the worst of US-China trade tensions, says PineBridge Investments MD Michael Kelly, who also explains why shifting trade patterns aren't all bad news.
Why investment trusts use gearing
08/08/2019  The AIC's Annabel Brodie-Smith talks to Morningstar's Holly Black about the risks and rewards of borrowing for investment trusts.
2 global stocks with investor upside
06/08/2019  Industrial supplier Ingersoll Rand and telco infrastructure company American Tower hold solid investor appeal, explains Alphinity's Jonas Palmqvist.
Change is in the air for global stocks
05/08/2019  Consumer cyclical stocks may tick upward in the coming months, though earnings downgrades still outnumber upgrades for now, says global equity portfolio manager Jonas Palmqvist.
Investing should make you uncomfortable, says Platinum
15/07/2019  Limiting yourself to locally-listed companies rules out a wide range of industries and the potential upside they bring to a diverse portfolio, says Platinum’s Andrew Clifford.
Bullish ASX investors may be underestimating rate risk
05/07/2019  Local share investors' continued confidence in the wake of Tuesday's historic RBA interest rate cut may be somewhat misplaced, warns Morningstar Investment Management's Brad Bugg.
Rising wages, inflation mean investors shouldn't overlook Japan
01/07/2019  Abenomics have taken hold, bringing the economy out of deflation and creating opportunities in several areas, including small cap stocks.
Tips on building a low-maintenance retirement portfolio
28/06/2019  These strategies can help investors who are either approaching retirement or already retired and don't want to spend hours each week monitoring their investments.
What happens when a fund suspends trading?
27/06/2019  As Woodford Equity Income suspends fund withdrawals, Morningstar's UK director of manager research Jonathan Miller tells senior editor Holly Black what it means for investors.
All buybacks are not equal, says Epoch
19/06/2019  Kera Van Valen and her team identify global companies with free cash-flow that regularly return profits via dividends, share buybacks and debt reduction, with Target a recent portfolio addition.
US stocks ‘rich and vulnerable’ but other markets still attractive
13/06/2019  Amid uncertainty around trade policies and global growth concerns, parts of Australia’s equity market still appeal as do Japan stocks and some domestic credit vehicles, says Schroders’ Australia head of multi-asset.
We’re simplifying global equities, says Magellan CEO
11/06/2019  One of Australia’s most successful professional investors, Hamish Douglass, explains how behavioural biases can harm your portfolio, and why he chose to launch an exchange-traded managed fund.
Antipodes highlights favoured markets, sectors
07/06/2019  Global stock picker Jacob Mitchell explains how investors can get exposure to consumer staples, and why he currently favours emerging markets and parts of Europe.
Why fund managers are embracing ESG
03/06/2019  Investor demand is just one of several reasons more fund managers are assessing companies against environmental, sustainability and governance criteria.
3 top picks: politics, equity risk among dominant investor themes
30/05/2019  Global economic policy, equity market risk levels and higher duration in fixed income investments are three key areas Insight Investment’s Steve Waddington is watching over the shorter term.  
Using multi-asset funds to lift, smooth investment returns
27/05/2019  Especially as markets dip and volatility ticks up, multi-asset investing can play a powerful role in investment portfolios, explains Insight Investment portfolio manager Steve Waddington.
The largest risk for young retirees
21/05/2019  Christine Benz talks with J.P. Morgan's Anne Lester about sequence risk, spending volatility during retirement and how to adjust withdrawals over time.
The investor risk of relying on economic forecasts
24/04/2019  Forecasts are usually designed to influence decision-making, and investors should be particularly wary of predictions that don't also provide a probability level, says Morningstar Investment Management UK's Dan Kemp.
3 approaches to sustainable investing
27/03/2019  The three main approaches that an ESG-conscious investor can follow often overlap, says Hortense Bioy, director of passive strategies and sustainability research at Morningstar.
WAAAX on: taking the pulse of small-cap players
25/03/2019  Tech darlings WiseTech and Xero may not yet be household names but they have made some stellar gains, says Ross Macmillan, senior analyst with Morningstar Manager Research.  
Why successful investors avoid knee-jerk reactions
19/03/2019  Tuning out from unhelpful market noise is often a far better investing strategy than responding to events that are outside your control, and Brexit is a prime example, says Morningstar's Dan Kemp.
Ask the expert: From Fairfax family to Morningstar members
14/03/2019  Previous roles managing the Fairfax family’s money and at Qantas Super provide several contrasts and comparisons to Matt Wacher’s new chief investment officer role at Morningstar Investment Management Australia.
More women on US boards, but gender imbalance remains
11/03/2019  Women hold 16 per cent of all company board positions, but there are several caveats including company size and a higher rate of double-up, according to a Morningstar US report.
Microsoft holds strong upside for investors, says Morningstar
05/03/2019  Very few companies the size of Microsoft can offer 12 percent revenue growth and 15 per cent earnings growth in each of the next several years.
'Cheap and hated' China market packed with opportunity
18/02/2019  Describing China's A share market as 'a stock pickers' paradise,' T Rowe Price's Eric Moffett is among a cohort of professional investors rushing to identify the best opportunities.
Don't get decimated in a downturn
13/02/2019  Diversification is your best bet to minimise losses during a downturn rather than expecting an active equity fund to turn defensive, says Morningstar's Russ Kinnel.
Spooked investors, market sell-off create opportunity
25/01/2019  US stocks are still considered broadly expensive, but consumer staples is one area where lower valuations are creating opportunity, says Morningstar Investment Management’s Bryce Anderson.
International exposure can bring big benefits, says Morningstar
23/01/2019  Minimising home bias within their portfolios should be a key focus for Australian investors in 2019, says Tim Murphy, director of manager research, Morningstar Australia.
Finding good returns in alternatives
17/01/2019  When all else is falling, alternative asset classes such as hedge funds, soft commodities, emerging market debt and banks loans can offer decent returns, says Morningstar's Brad Bugg.
Risk, return and the share price triple threat
11/01/2019  The challenge of creating a quality-focused share portfolio using only Aussie stocks is one of several reasons why a broader focus is important, says Morningstar Investment Management’s Peter Bull.
China could lead an EM rally in 2019
19/12/2018  Asian equities could lead an emerging market uptick in 2019, even after a tumultuous 2018 dominated by the US-China trade war and geo-politics.
Beware the allure of geared funds
12/12/2018  Geared funds can offer spectacular returns compared to the sharemarket, but they can equally plunge when things sour, warns Morningstar's Alex Prineas.
Emerging Asia: Lower expectations, outsized opportunities
11/12/2018  Japanese financials and technology firms in Taiwan and Korea are among some of the most attractive opportunities on Morningstar Investment Management’s radar into 2019.
3 top picks: Roads, power and education
05/12/2018  Large-cap companies Transurban, Navitas and Spark are highlighted by the head of Lazard’s defensive income strategy, Aaron Binsted.
Property crash, royal commission are key for income investors
04/12/2018  Australia’s residential property downturn and banking inquiry have influenced this income-focused strategy’s portfolio in 2018, as have commercial property valuations.
The elephant in the room of retirement planning
29/11/2018  Long-term care expenses in retirement are commonly overlooked, even among those who plan for the out-of-pocket ongoing costs, says Jean Young from Vanguard in the US. 
Some flawed thinking from emerging market investors
26/11/2018  The way many investors think about emerging markets is incorrect – they’re not uniformly volatile, and over-exposure to individual sectors and stocks can be problematic, says Morningstar Investment Management’s Nimalan Govender.
High risk, high return: scoping out small-caps
23/11/2018  More investors are looking to small caps for higher returns, in sectors such as healthcare, dairy and data storage, but there are risks, says Morningstar's Ross Macmillan. 
Australian retirees lack confidence
21/11/2018  Superannuation complexities, investment risk and regulatory uncertainty mean a shortfall in confidence is understandable in our current environment, says State Street’s Jonathan Shead.
4 stocks Buffett bought
20/11/2018  Morningstar looks at which companies Berkshire Hathaway bought and sold during a surprising third-quarter 2018.
Different viewing lens for consumers versus investors
13/11/2018  Changing tariffs and rising inflation in the US have different implications for individuals as investors and consumers, says Morningstar Investment Management’s Peter Bull, following on from his presentation at Morningstar Individual Investor Conference 2018.
Buying opportunities are out there
01/11/2018  Andrew Clifford, CEO of Platinum Asset Management, outlines where in the world and in which sectors and companies he sees investment value – even in a global environment many regard as late-cycle.
Market volatility can be an investor’s friend
31/10/2018  Market volatility effects various global sectors in different ways, and there is a crucial distinction investors must make between company cash flow and share price stability in this context, explains Magellan’s Vihari Ross.
Too much trading in ETFs, says Bogle
24/10/2018  The Vanguard founder says although there are some good uses for ETFS, he still sees lots of bad and poorly used products in the market. 
Finding value in troubled emerging markets
16/10/2018  Want to make money in emerging markets? Look for stocks that are uncorrelated to trade war fears and US central bank policy says T Rowe Price's Ernest Yeung.
Colchester's rigorous approach to bonds
11/10/2018  Colchester's silver-rated fund takes a rigorous approach to global government bonds and screens out any that aren't up to scratch, says Morningstar Australasia's associate director for fund research Tim Wong. 
Retirement income: expectations versus reality
24/09/2018  Schroders' global head of retirement discusses how investors approaching retirement can fill the retirement income gap, and why professional advice is so important.
Why tech, telco and mining are attractive
19/09/2018  T. Rowe Price's Australian equities team has bought into telecommunications for the first time in five years, and is more bullish than many on commodities.
Are ETFs overrated?
06/09/2018  Liquidity, transparency, and tax efficiency are hallmarks of ETFs, but Ben Johnson says some of these benefits can be oversold.
Balancing profitability and price
04/09/2018  Telecoms and financials are Australia's most attractive sectors in terms of valuation, but investors should be wary, says Morningstar Investment Management Australia's head of equities.
Multi-asset strategy key in turbulent times
29/08/2018  In our global climate of geopolitical crises, trade disputes and general uncertainty, a multi-asset approach to emerging market investing can be useful, says Morningstar UK's Dan Kemp.
3 stocks that are well known but not overdone
28/08/2018  This European bank, UK oil major and established US software player still hold good investor value, says Franklin Templeton' s Peter Wilmshurst.
Finding value in complicated times
23/08/2018  Geopolitical turmoil and other international market movers play a part in this team's value-selection process, explains Franklin Templeton's Peter Wlimshurst.
How political change can affect stock markets
09/08/2018  As Pakistan and Cambodia form new governments following their general elections, T Rowe Price's Eric Moffett examines how politics can affect profits in Asia.
3 small-cap top picks
09/08/2018  Fidelity's James Abela nominates these three smaller businesses from the healthcare, tourism and engineering sectors as companies of interest.
The Aussie fund with no banks or miners
07/08/2018  BlackRock's Australian concentrated industrials fund creator, Charlie Lanchester, explains his bold call to avoid holding banks and resource companies.
Top themes on BlackRock's radar
02/08/2018  The prospects for Brand Australia in China are on the rise, says BlackRock's Charlie Lanchester, who has some hidden tech-stock gems in mind. 
A small-cap investing strategy with a difference
31/07/2018  Terms like nightclub, love jungle and no-man's land aren't usually associated with investing, but they're useful signifiers, according to Fidelity portfolio manager, James Abela.
Understanding managed fund income and capital gains
26/07/2018  Dividends remained quite stable, while realised capital gains fluctuated from year-to-year, according to a Morningstar study of 34 large-cap equity funds over 11 years.
3 sectors to watch
26/07/2018  Beyond FAANGs, this technology field holds opportunity, as do selective parts of the energy and mining sectors, says State Street's Olivia Engel.
Wear your seatbelt as market volatility returns
24/07/2018  How company fundamentals rather than statistics underpin this team's process, and why the definition of defensive assets is changing, according to State Street's Olivia Engel.
Investor appeal of China increasing despite lower growth
20/07/2018  In a positive for global investors, China's slowing economic growth reflects a shift toward more sustainable expansion away from a debt-fuelled binge. 
How interest rates affect REITs and infrastructure assets
19/07/2018  Global property and infrastructure assets are expensive in the current environment but remain important as portfolio diversifiers, says Morningstar Investment Management's Bianca Rose.
Geopolitical clouds mar second half, says Dwyfor Evans
18/07/2018  The geopolitical news that has clouded the first half of 2018 is set to continue, says Dwyfor Evans of State Street.
3 global stock hits and a miss
17/07/2018  The founder and CIO of PM Capital names three US companies of interest, and one negative stock pick that may surprise investors.
Why news and politics are investor distractions
16/07/2018  Share investors shouldn't pay undue attention to news headlines and macro-political events, but retain focus on a five- to 10-year plan, says Paul Moore, founder and CIO, PM Capital.
Getting bang for your buck when equities struggle
10/07/2018  Particularly as equities look expensive, quantitative momentum investment can provide useful diversification for some investors, says PIMCO's head of quantitative strategies.
Picking winners and losers via long-short investing
05/07/2018  There are richer investment opportunities available if investors also consider offshore companies and long-short positions via trusted funds, according to Antipodes' Sunny Bangia.
How China is opening its doors to global investors
05/07/2018  It is now easier than ever to invest in companies based in mainland China, and China is investing in global projects of its own.
Cash a safe haven in overvalued markets
04/07/2018  Cash may have a bad reputation as an asset class but as Morningstar Investment Management's Andrew Lill points out, when equities are overvalued it's a safe place to be while offering the liquidity to jump on opportunities when they emerge. 
Grantham: Big oil fighting the green movement isn't ethical
25/06/2018  The investment community severely underestimates the risk of climate change, and the oil sector in particular isn't acting ethically or sensibly in this regard, says GMO's Jeremy Grantham.
Schroders: China shares won't be derailed by Trump tariffs
21/06/2018  Schroders' Jason Yu says protectionism will increase market volatility but the fundamentals remain strong for Asia equities.
Why US share market crash is not inevitable
20/06/2018  The lack of euphoria in the market today may mean the US stock market avoids a severe decline, according to one of the world's most influential investors, Jeremy Grantham.
When an active investing strategy beats passive
19/06/2018  The value of a good asset manager comes to the fore amid market volatility and in assessing recent company listings, says Fidelity's Kate Howitt.
Trade terms, retail disruption among key investor risks: PIMCO
18/06/2018  A shift toward restrictive trade policies among some developed markets ranks among the primary risks for fixed income, while opportunities include US housing and European financials, says PIMCO's Mohit Mittal.
Bullish on Qualcomm, bearish on Tesla
15/06/2018  Global fund manager Antipodes is upbeat on mobile phone technology and natural gas, but less so on software companies and Tesla.
VIDEO | Investors hoard cash at their peril, says JP Morgan
07/06/2018  When it comes to thinking about retirement, a survey of Hong Kong investors mirrors errors made by investors in the developed world at large: they are saving too little and relying too much on cash, says JP Morgan's Wina Appleton