Type: Unit-linked fund
Aim: Growth by investing in a portfolio of ethical and socially responsible investment funds managed to a balanced risk profile
Minimum investment: Dependent on wrapper product
Investment split: 75% equity funds, 15% bond funds, 5% alternative investment funds, 5% cash
Charges: Annual 0.25%, additional charges for wrapper product
Commission: Dependent on wrapper product
The fund, which is available only through Merchant Investors’ product range, was devised by IFA firm The Ethical Partnership and is managed on a discretionary basis by Minerva Fund Managers.
Arch Financial Planning managing director Arthur Childs says: “There are a number of IFA firms who specialise in ethical, green, environmental and other socially responsible investments but all advisers have been encouraged for some time now to discuss an investor’s interest in socially responsible investing as part of the fact find process.”
Childs thinks it is surprising that there has been no socially responsible, multi asset, fund of funds to make the job easier for the non-specialist IFAs. “That gap in the market could be filled in due course by the Eden SRI balanced fund. This is an unfettered fund of funds and is not limited to investment in Oeics but will include investment trusts, ETFs, and structured products where appropriate.”
Childs notes that the fund is the brainchild of specialist ethical IFA firm, The Ethical Partnership, but it can only be accessed through products offered by Merchant Investors, although it may be available in the future as an Oeic if its assets grow to £20m . “Merchant Investors’ products are known to be keenly priced, but that restriction is bound to reduce the IFA interest in this fund,” says Childs.
He points out that The Ethical Partnership is using Merchant Investors’ Zest Solutions facility to launch this fund. “This is an insurance fund support package that enables advisers to run and eventually own their own-brand fund of funds Oeic. This may sound like the somewhat discredited broker funds, but the use of external discretionary fund managers means that this in an altogether different league. In effect Merchant Investors has provided a ‘fund nursery’ in which new funds can grow to a reasonable size, which is typically estimated at around £20m, before being made available through fund platforms and wraps.”
Childs adds that investment manager Minerva Fund Managers is a family run discretionary fund management business with a twenty year history and is probably best known for the Minerva Fund Ratings Guide used by many IFAs. “Minerva is responsible for the asset allocation and making sure the risk profile continues to be appropriate. “
Childs highlights the SRI experience of The Ethical Partnership as a positive, as decisions about whether a fund meets the SRI criteria will be made jointly by a committee consisting of members of Minerva and The Ethical Partnership.
He points out that fund selection will be based on positive screening, with the objective of providing growth through investing in funds which provide sustainable solutions to global, social and environmental challenges.
Looking at the charges, Childs says: “The fund has an annual charge of just 0.25 per cent and an attractive total expense ratio of 1.6 per cent. The Merchant Investors product charge will be in addition to this, for example tits onshore bond would add a further 0.5 per cent a year. However, this is still below that of a number of well-known non-SRI fund of funds in the balanced managed sector according to the latest Aequos Multi Manager Guide. “
In Childs’ view, this is not a fund for the determined ethical investor who wants to avoid certain sectors because a fund of funds cannot take a client’s particular ethical stance into account. “Rather this fund is suitable for investors for whom the concept of socially responsible investing is appealing in more general terms,” says Childs.
The only negative feature for Childs is its limited availability, but he cannot fault Merchant Investors for providing a green house facility for IFAs to launch their own funds.
Discussing potential competitors, Childs says: “I am only aware of one other socially responsible fund of funds, the Credit Suisse manager-manager ethical fund, now rebranded by Aberdeen. The performance was so poor that it dropped off my radar a few years ago and I continued to pick individual ethical funds for clients. “ He thinks competition will come from bespoke funds run by discretionary fund managers, but notes that comparisons cna be difficult for DFMs. “ A fund of funds does have an advantage over a DFM service in that the capital gains tax liability can be managed by the client rather than produced by changes within the portfolio.”
Suitability to market: Good
Investment strategy: Good