30 September 2020

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 generate an income stream consistent with prevailing short-term interest rates while minimising the risk of capital loss and supporting the Australian Ethical Charter.

Investment strategy

The opportunity to invest in a diversified portfolio of interest-bearing investments generating income. The Fund is invested in short-dated deposits, high grade mortgage-backed securities, State and Commonwealth Government Bonds, and bank and other corporate bonds. As such, the returns of the Fund tend to move in line with the general level of interest rates.

Performance

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Annualised performance

1m3m6m1y3y5y10ySince inception
Fund0.0%0.2%0.5%0.9%1.6%1.8%-1.8%
Benchmark0.0%0.0%0.1%0.6%1.4%1.6%-1.6%

Calendar performance

CY 2019CY 2018CY 2017CY 2016CY 2015
Fund1.9%1.9%2.2%2.2%-
Benchmark1.4%2.0%1.8%2.0%-

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
%
Government of Australia
14.1%
New South Wales Treasury Corp.
11.4%
Queensland Treasury Corp.
9.7%
Western Australian Treasury Corp.
9.6%
South Australian Government Financing Authority
6.2%
National Australia Bank Limited
4.6%
Bendigo and Adelaide Bank Limited
4.4%
Bank of Queensland Limited
3.5%
Westpac Banking Corporation
3.2%
International Finance Corporation
2.4%

Commentary

Over the September quarter, after fee performance of the Income Fund was 0.14% (0.18% Wholesale Fund), ahead of its benchmark the Bloomberg Ausbond Bank Bills Index at 0.03%. The outperformance owes to a continuation of a tightening of credit spreads, in addition to ongoing declines in short-term money market rates.

Short-term money market rates have continued to tighten as expectations mount of further monetary policy support from the Reserve Bank of Australia. Further evidence of these expectations could be seen late in August and through September as the yield on 1 year Commonwealth Government Bonds began declining below the 0.25% level of the RBA’s Yield Curve Control Target, which is expected to be cut alongside the cash rate in the near future.

The outlook for short-term money markets remains one of subdued returns. Bank Bill rates reflect the abundance of available liquidity for the major banks, running below 0.10%. Some Banks have notified depositors they are not accepting new funds.The Income Fund continues to hold a mix of high quality liquid assets, bank senior debt positions, corporate credit and term deposits. The Fund continues to and seek opportunities for yield within this universe.