B. Ethical Investment Fund
Key fund stats
as at 28 February 2021
Performance is based on the percentage change in the Fund’s spot unit price after the deduction of management and performance fees. This graph assumes all distributions are reinvested and excludes tax credits and implications. A buy-sell spread applies to the spot unit price when transacting in the Fund.
The Fund provides exposure to an actively managed portfolio of high-growth shares outside the S&P/ASX 100 index. The Fund aims to provide attractive investment opportunities for investors seeking medium-to-long term capital growth and some income. It seeks to create returns in a responsible manner with reference to our Responsible Investment Charter. The Fund uses our conservative investment philosophy and a value-driven analytical approach to select a portfolio structured towards delivering consistent returns.
The Fund invests in a diversified portfolio of ASX-listed Australian shares outside of the S&P/ASX 100. It is a growth orientated fund investing in smaller companies that, in our view, have business models which are well positioned for expansion and have been identified as undervalued by our investment team.
- 1. We avoid investing in companies which operate in industries which, in our view, cause significant social or environmental harm.
- 2. As active shareholders, we support and encourage companies to act in a socially responsible manner on environmental, social and governance issues.
While we have a preference for investments that have a social impact, and are sustainable, the primary driver of stock selection is profit driven.
Please refer to our Responsible Investment Charter for further detail.
The Fund aims to provide a rate of return (after fees and expenses and before taxes) which exceeds the return of the S&P/ASX Small Ordinaries Index on a rolling three-year basis.
The Fund adopts a bottom-up approach to identify, research and value companies. The investment style is built upon a systematic and disciplined research process that aims to deliver superior risk-adjusted returns by favouring growth stocks that can expand their business model. As a responsible investor, we do not invest in companies in industries which we consider significantly harmful to society or the environment in accordance with our Responsible Investment Charter. While we have a preference for sustainable investments that have a social impact, the primary driver of stock selection remains profit driven.
- 1. We start with our stock universe of all ASX-listed companies which are outside of the S&P/ASX 100
- 2. We screen out companies which we consider significantly harmful to society or the environment in accordance with our Ethical Investment Charter
- 3. We identify companies that we expect to outperform the S&P/ASX Small Ordinaries Index based on the underlying drivers of company earnings and costs
- 4. We prefer to invest in companies that are beginning to prove their business model, allowing us to draw on fundamental analysis and our insight to identify companies with sound opportunities for growth. We favour companies that have fast growing revenue lines and are, or are close to, being cashflow positive
- 5. We scrutinise companies and meet with management where necessary, and possible, to form a view on whether their business model is truly scalable
- 6. We take time to analyse the market in which a company operates and a company’s competitors to form a holistic opinion of the company
- 7. We are mindful of, and advocate for, corporate social responsibility in our dealings with companies
- 8. We use diversification across different companies and industries to help smooth the volatile nature of investing in shares outside of the S&P/ASX 100 and avoid large exposures to any one industry sector
We apply a disciplined, research-driven investment approach. However, investing in the Fund carries investment risk which, in summary, include:
- Market risk – the risk that the value of your investment will vary over time, influenced by factors that influence the whole share market
- Variability of returns – the risk that the level of returns in your investment will vary. Future returns may not reflect past returns and investors may lose some or all of their money
- Company specific risks – the risk that the value of companies that the Fund invests in will vary and will be affected by both internal and external influences (e.g. management, operational efficiency, industry competition and social, government and environmental issues)
- Ethical screen risks – despite best efforts, it may be possible that the Fund invests in an industry or company that causes significant environmental or social harm
- Liquidity risk – a trading suspension on the market, or in an individual investment, may prevent the Fund from selling its investments which can affect the amount of time it takes us to satisfy a withdrawal request
- Regulatory and tax risks – laws affecting registered managed investment schemes or tax may change in the future which may affect the value of the Fund’s assets or their tax treatment
- Operational risks – our or a third-party’s operational failures may adversely affect the Fund and its performance
- Performance fee risk – as performance fees are charged, we may have an incentive to take greater investment risks
In addition to the above risks, if the Fund invests in derivatives, the following significant risks will apply:
- Imperfect hedging – the Fund may invest in derivatives to reduce the impact of value fluctuations on the Fund’s investment/s. However, hedging may be imperfect and losses may arise
- Leverage – derivatives are usually leveraged and have the potential to result in losses that are more than the money initially invested
- Counterparty risk – derivatives are entered into with a counterparty and there is a risk that the counterparty will fail to meet its financial obligations under the transaction
Please refer to the Fund’s Product Disclosure Statement for further detail.
Costs of investing in the Fund include:
- Management fees of 1.20%* p.a. of the Fund’s net asset value
- Performance fees where the Fund’s return:
- is positive
- exceeds the benchmark (S&P/ASX Small Ordinaries Accumulation Index) for the quarter, and
- recoups any previous under-performance.
- If payable, performance fees are 15%* of the amount by which the Fund’s return, after the deduction of management fees, exceeds the hurdle return and recoups any under-performance (see worked example below).
- Transaction costs – transacting in the Fund necessitates buying or selling investments. To help ensure transaction costs are not borne by non-transacting investors, we apply a buy-sell spread of 0.25% to an investment or withdrawal. The buy-sell spread is not a fee paid to us, but retained in the Fund to cover the cost of buying or selling the Fund’s investments.
We recommend reading the Fund’s Product Disclosure Statement which sets out the fees and costs in further detail. It also explains other potential fees and costs you may incur, such as financial adviser fees if you have received advice from a financial adviser in relation to the Fund.
*Management and performance fees are stated GST inclusive, net of expected reduced input tax credits.
Performance fee example
As at 30 June 2020, the Fund had accumulated underperformance of -$0.0173 per unit. During the quarter of 1 July to 30 September 2020, the Fund performed well and returned $0.1196 per unit for the quarter after the deduction of management fees. The Fund’s performance beat the benchmark’s unitised return of $0.0580 per unit resulting in outperformance of $0.0616 per unit. This outperformance was large enough to recoup previous underperformance of -$0.0173. Consequently, as the Fund has performed well (beating the benchmark) and recouped all previous underperformance, a performance fee becomes payable of $0.0067 per unit (15% of $0.0616-$0.0173) for the quarter.