30 September 2019

Australian Ethical is one of Australia's leading ethical fund managers. By investing responsibly in well-managed ethical companies, we deliver competitive financial performance to our clients and positive change to society and the environment. Since our inception in 1986, our Ethical Charter has guided all investment decisions and underpinned our business practices. Every year 10 per cent of our profits* are distributed to charitable organisations and social impact initiatives through The Australian Ethical Foundation.

Investment objective

To provide long-term growth through investment in listed companies on Australian and international stock exchanges that meet the Australian Ethical Charter.

Investment strategy

The opportunity to invest in a diversified share portfolio of Australian and international companies on the basis of their social, environmental and financial credentials. Generally, all Australian investments will have a market capitalisation greater than the 200th ranked stock listed on the ASX. The Fund has a low level of turnover and aims to be fully invested at all times.

Performance

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Annualised performance

1m3m6m1y3y5y10ySince inception
Fund0.5%1.9%8.6%11.0%9.9%9.7%8.1%8.5%
Benchmark1.9%4.0%12.1%11.8%11.5%10.3%10.6%8.3%

Calendar performance

CY 2018CY 2017CY 2016CY 2015CY 2014
Fund-3.1%11.9%5.9%6.3%15.5%
Benchmark-2.8%10.2%7.1%9.0%11.1%

Why invest ethically?

Portfolio diversification: Diversify your portfolio by investing in companies and sectors not well covered by other fund managers and brokers.

Help build a better world: Invest in the new, low‐carbon economy, fund medical and technology breakthroughs, efficient transport and more.

Promote human rights: We strive to avoid any investment in companies involved in the poor treatment of asylum seekers or the exploitation of workers through poor working conditions.

Current top 10

Description
%
Westpac Banking Corporation
2.1%
CSL Limited
2.0%
National Australia Bank Limited
2.0%
Telstra Corporation Limited
1.6%
Resmed Inc CHESS Depositary Interests on a ratio of 10 CDIs per ord.sh
1.5%
Goodman Group
1.4%
QBE Insurance Group Limited
1.4%
Lendlease Group
1.4%
Brambles Limited
1.3%
Insurance Australia Group Limited
1.3%

Commentary

The Diversified Shares Fund returned 1.9% (2.1% for the wholesale fund) over the September quarter, underperforming its benchmark (75% ASX200, 25% MSCI World ex Au) which returned 4.0%. Global markets performed well with the US and Japan significant drivers. The S&P 500 increased by 5.8% and the Nikkei 225 increased 6.9% over the quarter, while in Europe markets lagged with the UK FTSE 100 up only 0.5% and the MSCI Europe (ex UK) up 2.5%. Domestically, while the S&P ASX 200 increased by 2.4%, performance was relatively subdued compared to other markets, as concerns about Australia’s slowing economy weighed on investors’ minds.

While overall global market performance was strong, there was significant volatility, particularly through August. Markets continued to be sensitive to political developments, in particular Brexit, as well as trade tensions between the US and China. Markets were also rocked significantly in July by the inversion of the yield curve, which is believed by some to be a leading indicator of an economic slowdown or recession.

Despite these concerns, the international equities component of the fund returned positive performance across all sectors over the quarter. The biggest contributors to performance were utilities, which increased 13.1% over the quarter, and real estate, up 8.3%, as investors continue to chase yield and stability in a low-interest-rate and volatile environment. Consumer discretionary (which increased 6%), and consumer staples (which increased 5.4%) were also strong contributors as consumer sentiment in the US continued to show positive signs.

The largest contributor to performance in the domestic equities portfolio was stock selection in the communication services sector. While the sector overall declined by -3.2%, the fund’s holdings in the sector appreciated 5.3%, driven in part by REA Group which returned 13.4% over the quarter as sentiment around the housing market improved.The fund’s relative underperformance compared to its benchmark was driven largely by the domestic equities portfolio, which underperformed its benchmark by 1.8%. The largest detractor was the information technology sector largely due to an overweight position in Nearmap, which declined 31.8%, and Appen, which declined 24.3%.