Audrey Ryan
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The manager of Aegon’s dark-green ethical equity fund has had a challenging time amid the economic turmoil but has produced impressive long-term performance and she sees great potential for growth, particularly with the changing political climate Interview by James Smith
Audrey Ryan passed a decade running Aegon’s ethical equity fund in 2009, doubling performance from the UK all companies peer group over that time.
Despite this, she acknowledges that the fund’s dark-green investment criteria can be challenging for performance, with last year’s environment partic- ularly tough.
Green issues have been dominating the news agenda, with the recent Copenhagen summit on climate change, and Ryan said these issues have clearly moved up the political agenda in recent years. She says: “Despite some of the political posturing coming out of Copenhagen, the global focus on green issues is beneficial for ethical investing.
“China committing to its greenhouse gas targets is a major positive but it remains to be seen how quickly these talks actually feed through into legal changes, which has often been a protracted process in the past.”
Ryan qualified as a chartered accoun-tant in 1993, working in private practice for two years before moving to General Accident to run UK small-cap and mid-cap money. She joined Aegon in 1997, preferring to remain in Scotland when GA moved to London, and her small and mid-cap expertise proved partic-ularly relevant for the ethical mandate.
Aegon was among the first groups to enter this area, launching the ethical equity fund in 1989, and has kept rigidly to its initial dark-green screening principles. This approach involves absolute negatives, avoiding anything involved in gambling or armaments, for example, whereas more recent lighter-green funds seek stocks that are ethically best in class.
Ryan sees a place for both in the market serving different kinds of investors, with darker-green products for those who definitely want to exclude certain types of company from their portfolio.
Aegon’s process screens out companies involved in animal testing, armaments, nuclear power, anything damaging the environment, gambling, alcohol, tobacco, and pornography. It also excludes any firms operating in countries with poor human rights records and the majority of banks, as most have exposure to large corporate debt or developing nations’ debt.
Overall, Aegon has 12 individuals covering UK equities, with four - including Ryan - focusing on mid caps and small caps.
This is the traditional hunting ground for ethical funds, with many bigger blue chips excluded as they fail one or more of the criteria. In addition, there is also a separate corporate governance unit responsible for enforcing and maintaining the ethical screens.
Ryan believes this separation of responsibility works well and differentiates Aegon from certain peers, where the managers are heavily involved in the ethical side: “When it comes down to it, I am a fund manager paid to outperform my benchmark, albeit choosing stocks from a list that pass our ethical criteria. Separating the role means neither side is clouded by the other and, while our fund has strict constraints, I will also only buy stocks that can make positive returns.”
Critics of ethical investing have always rounded on the performance issue, particularly as so many key parts of the market are effectively closed off. But despite challenging periods, Ryan’s fund boasts a robust long-term track record, ranking 52nd out of 288 UK all companies funds over five years to December 7.
Ryan said the worst environment for the fund is when defensive sectors such as pharmaceuticals and tobacco are leading the market, with both being no-go areas for her.
Banks and miners are also out - apart from mortgage specialists in the former and precious metals in the latter - and there is little that Ryan can do to replicate market performance when these areas surge.
Some firms have loosened their policy on banks in recent years, believing the sector is just too big to ignore, but Aegon’s clients wanted the company to maintain its dark-green stance.
In 2008, Ryan registered creditable second-quartile performance against an extremely tough macro background, benefiting from a natural avoidance of freefalling banks.
“Our UK equity desk was seeking companies with resilient earnings and strong balance sheets during this period and the screens unfortunately kept me out of stocks such as BAT and British Aerospace. Instead, I kept a larger cash position than usual, using our flexibility to go up to 20 per cent, and also looked to capture the market’s overall defensive theme through areas such as utilities, electricity and healthcare.”
Last year proved much tougher, with fourth-quartile numbers, as Ryan struggled against the twin headwinds of surging miners and banking stocks in the post-March rally.
“Some of my stock selection in areas like support services has not been as good as in the past but the main issue has been lack of access to miners and banks. Ethical equity can own other financials such as life companies but these do not provide genuine correlation to banks and not holding the Asian-facing Standard Chartered and HSBC has been a major factor in underperformance. But the ethical restrictions are there for a reason and I have to generate the best performance possible, whatever the challenges.”
As the market turned last March, Aegon’s UK team - and Ryan where possible - bought into early-cycle recovery stocks such as Travis Perkins on extremely low valuations.
Heading into 2010, they are starting to take money out of these areas as valuations normalise, reinvesting in growth stocks where earnings remain resilient.
While the market has re-rated substantially, Ryan sees scope for 2009’s rally to continue, although she notes challenges arising when the stimulus packages start to be withdrawn. Key themes for the firm’s UK desk include capturing the growth of emerging markets, although the ethical equity fund is once again somewhat constrained in playing this theme.
She also sees major potential in some of the pure ethical and environmental sectors, particularly given the political climate, although many remain at too much of an early stage to offer sufficient returns.
One holding in this area is Impax Asset Management, the specialist environmental fund firm, and Ryan says: “This position allows us to capture the various water and waste themes in markets outside the UK, as they are often stronger in Europe.” Another position is in PV Crystalox Solar, a key player in the solar technology development market.
Born: Dunkeld, Perthshire
Lives: Edinburgh
Education: Accountancy degree, Chartered Accountant of Scotland
Career: Investment Manager, UK equities, Aegon Asset Management; UK small-cap manager, General Accident; audit manager, Bell & Co.
Accountants
Likes: Travelling, running, cinema
Dislikes: Bureaucracy
Drives: Golf (diesel)
Book: James Patterson novels
Film: The Usual Suspects and Narnia
Album: Varied mix on iPod
Career ambition: To be a highly rated fund manager
Life ambition: More travelling, specifically in Asia and South America
If I wasn’t doing this I would be…A partner in an accountancy practice or, in an ideal world, a ski instructor
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