ETHI/FAIR - true to label ethical funds, allowing investors to profit from their principles
Key Takeouts
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Interest in responsible investing is on the rise |
Responsible investing doesn’t mean sacrificing financial performance |
ETHI and FAIR offer ‘true to label’ exposure |
Responsible investments now account for 44% of total professionally managed AuM in Australia. |
The indices ETHI and FAIR aim to track have outperformed comparable broad sharemarket indices over the past 5 years1. |
ETHI and FAIR employ some of the most stringent ESG screens in the industry, and have both been certified by the RIAA as a ‘Certified Ethical Investment’. |
Earlier this month, Ethical Investment Week 2019 took place around the world. The week followed hot on the heels of Greta Lundberg’s appearance at a United Nations summit, where the Swedish teenager accused world leaders of failing to act over climate change. It also coincided with protests around Australia by Extinction Rebellion, in which climate protesters have staged blockades of busy city intersections.
Not everyone wants to express their views by sitting in the middle of a CBD intersection. However, an increasing number of investors want to invest in a way that reflects their stance on ethical and environmental issues.
The Responsible Investment Association Australasia (RIAA) has just released its 2019 Responsible Investment Benchmark Report.
The RIAA found that responsible investment assets under management (AuM) grew by 13% in 2018 to $980 billion, representing 44% of total professionally managed AuM in Australia (using a broad definition of responsible investment)2.
Retail investor interest is on the rise, with investment managers indicating that 42% of their responsibly managed AuM was on behalf of retail clients, up from 30% in 2017.
Possibly the two most important questions these investors have are:
- How do I know I’m really buying a responsible or ethical investment?
- Does responsible investment come at the cost of financial performance?
True to label
Interpretations of ‘socially responsible/ethical investing’ can vary widely, and investors are unlikely to accept an investment manager simply ‘self-declaring’ that they are implementing responsible investment, or relying on the fact that a fund has the word ‘responsible’ or ‘ethical’ in its name. For example, some ‘ethical’ funds avoid investing in ‘pure play coal companies’, however, they may still hold major coal producers, such as BHP and Anglo American, on the grounds that they are ‘general mining’ companies rather than ‘coal miners’.
Some investors may be comfortable with this, but for others such exposure would be inconsistent with their principles.
BetaShares offers two responsible investment ETFs:
Both funds have been certified by RIAA according to the strict operational and disclosure practices required under the Responsible Investment Certification Program. See www.responsiblereturns.com.au for details. ETHI and FAIR employ some of the most stringent environmental, social and governance (ESG) screens in the industry, and exclude companies with significant exposure to the fossil fuel industry, as well as those engaged in activities/products deemed inconsistent with responsible investment considerations, including gambling, tobacco, armaments, uranium/nuclear energy, destruction of valuable environments, animal cruelty, mandatory detention of asylum seekers, alcohol, and pornography. Both funds also include company board gender diversity screens. |
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Both ETHI and FAIR recently received ratings of 4.5 out of 5 from the Ethical Advisers Co-op, the highest rating by any investment fund.
Also, while the funds’ investments are passively selected, BetaShares also engages actively with companies on ethical issues. We vote in a way that aligns with the ESG criteria for the index the fund aims to tracks. Our proxy voting record on ESG resolutions for the companies held by ETHI and FAIR can be found under the ‘Proxy Voting’ heading on our Regulatory Resources page.
Principles or performance – is it a choice?
Some investors historically have believed that giving priority to ethical considerations means sacrificing financial returns. For example, 45% of respondents in the RIAA survey identified performance concerns as a deterrent to investing responsibly. On the other hand, 50% of respondents believed that factoring ESG considerations into investments decisions would have a positive impact on portfolio performance.
The research indicates the second group is on the right track.
The RIAA found that, as at 31 December 2018:
- Australian RI share funds outperformed mainstream Australian share fund benchmarks for all periods considered except the three-year term.
- International RI share funds outperformed the Morningstar average mainstream international share fund over every time horizon considered.
- Responsible investment multi-sector funds outperformed the mainstream multi-sector growth fund average over every time horizon considered.
AUSTRALIAN SHARE FUNDS | 1 YEAR | 3 YEARS | 5 YEARS | 10 YEARS |
Average responsible investment fund (between 17 and 34 funds sampled depending on time period) | -1.24% | 5.70% | 6.43% | 12.39% |
Morningstar: Australia Fund Equity Large Blend | -5.49% | 4.87% | 4.42% | 7.95% |
S&P/ASX 300 Total Return | -3.06% | 6.65% | 5.60% | 8.91% |
INTERNATIONAL SHARE FUNDS | 1 YEAR | 3 YEARS | 5 YEARS | 10 YEARS |
Average responsible investment fund (between 7 and 38 funds sampled depending on time period) |
-0.03% | 11.18% | 9.48% | 9.50% |
Morningstar: Equity World Large Blend | -0.68% | 6.37% | 8.42% | 8.97% |
MSCI World Ex Australia NR AUD | 1.52% | 7.49% | 9.81% | 9.57% |
MULTI-SECTOR GROWTH FUNDS | 1 YEAR | 3 YEARS | 5 YEARS | 10 YEARS |
Average responsible investment fund (7 funds) | -1.13% | 4.75% | 5.65% | 7.66% |
Australia Fund Multi-sector Growth | -2.26% | 4.39% | 4.92% | 7.02% |
Outperformed by the average RI fund Underperformed by the average RI fund
Source: Responsible Investment Benchmark Report 2019 Australia (RIAA). Past performance is not indicative of future performance.
Performance of BetaShares responsible investment funds
Canstar recently named ETHI and FAIR as the number 2 and 3 funds respectively in their ‘10 Top Performing Ethical Investment Funds’, based on the 2018/19 financial year, in which:
- ETHI returned 17.0%
- FAIR returned 16.5%
The funds have attracted strong investor interest since inception, and each has more than $350 million in AuM as of 9 October 2019. At the time of writing ETHI and FAIR are the #1 and #2 largest ‘ethical’ ETFs available on the ASX.
Both ETHI and FAIR have outperformed comparable broad sharemarket indices since inception in 2017, while the indices the two funds aim to track have outperformed over a longer timeframe (see following tables). For example:
- The index ETHI aims to track has outperformed the MSCI World Index (AUD) by around 3.5% p.a. over the last five years.
- The index FAIR aims to track has outperformed the S&P/ASX 200 Index by around 4% p.a. over the last five years.
Performance of ETHI’s Index against global benchmarks to 30 September 2019
ETHI’s Index | MSCI World Index (AUD) | S&P Global 100 Index (AUD) | |
1 year | 13.76% | 9.24% | 11.44% |
3 years (p.a.) | 18.27% | 14.94% | 17.78% |
5 years (p.a.) | 16.47% | 12.91% | 14.01% |
Performance of FAIR’s Index against S&P/ASX 200 index to 30 September 2019
FAIR’s Index | S&P/ASX 200 Index | |
1 Year | 13.21% | 12.47% |
3 Years (p.a.) | 12.13% | 11.88% |
5 Years (p.a.) | 13.52% | 9.50% |
Source: Bloomberg. The Index which ETHI aims to track is the Nasdaq Future Global Sustainability Leaders Index. The inception date of the index is 29 April 2011. The Index which FAIR aims to track is the Nasdaq Future Australian Sustainability Leaders Index. The inception date of the index is 17 November 2017. This table includes backtest data. You cannot invest directly in an index. Past performance is not an indication of future performance of the Index or the ETF. Performance does not take into account ETF fees and costs.
For more information on the two funds, go to ETHI and FAIR.
There are risks associated with investing in the Funds, including market risk and non-traditional index methodology risk. The value of an investment and income distributions can go down as well as up. Before making an investment decision investors should consider the relevant PDS and their particular circumstances, including their tolerance for risk, and obtain financial advice.
1. Source: BetaShares, Bloomberg. Past performance is not an indication of future performance.
2. The RIAA defines responsible investing, also known as ethical investing or sustainable investing, as ‘a holistic approach to investing, where environmental, social and corporate governance (ESG) and ethical issues are considered alongside financial performance when making an investment.