The new fund will aim for growth and income by investing in 40-60 equities of companies listed mainly in the UK. It targets returns of 2-3 per cent a year above its benchmark, the FTSE All-Share Index.
The Fund will be managed by Bradley Mitchell, who has more than 20 years’ experience of UK equities. He has managed the Scottish Life ethical equity pension fund since March 2004 and also runs the Royal London UK growth fund.
Ethical screening for the new fund will provided by independent ethical research company EIRIS. The screening will avoid companies that generate more than 10 per cent of their turnover from alcohol, armaments, gambling, tobacco and pornography.
Companies that impact on the environment or operate in countries where human rights is a concern will be ineligible if there are no adequate policies in place to address these issues. Firms that use or provide animal testing services will also be avoided.
A scoring system will be used to identify the best companies from those that are deemed eligible. From this universe, the manager will select undervalued companies that have fallen out of favour, but where a catalyst for change should lead the market to upgrade its share price. The portfolio will reflect the manager’s top down view, with the portfolio having a cyclical or defensive bias depending on market conditions.
RLAM underlines the need for ethical funds that can deliver returns and says the former does not have to come at the expense of the latter. The negative screening will reduce the number of stocks available to the fund manager, which could impact on performance. However, some advisers will feel Mitchell’s stockpicking from what is available, rather than the screening process, will ultimately be responsible for performance.