SLI already applies an ethical framework to UK equities through its UK ethical fund and fixed interest through its ethical corporate bond fund. The new addition to the ethical fund range will aim for growth using the same investment process as the existing funds but will apply the ethical criteria to European companies. Companies that fail to meet the criteria will be excluded, although firms that make a positive contribution to preserving the environment or improving quality of life will be included.
The ethical screening process will be both positive and negative. It will identify companies that provide a positive contribution to the environment, have sound employment practices, with clear policies and procedures on bribery and corruption. The negative screening will exclude companies that do not contribute to preserving the environment, firms that are involved in animal testing, genetic engineering, the production of alcohol, pornography, weapons, tobacco and gambling. Stocks are rated as acceptable if they pass the negative criteria and rated preferred if they pass both the negative and positive criteria.
The lead fund manager is investment director Stuart Fraser, who has over 20 years investment experience. He joined Standard Life in 1996 and also manages the company’s European Equity Growth Fund. He previously headed the European team at Britannia Investment Managers, a company he joined in 1987 when it was FS Assurance.
Although Fraser and his team will work within the ethical guidelines, they still aim to make money through stock selection. They will look for companies that are improving but where the improvements are not fully priced-in by the market. Stocks that are deemed acceptable or preferred will be analysed in terms of factors such as earnings momentum and company visits will be made.
Ethical funds have grown in popularity and with governments around the world committed to issues such as global warming, ethical concerns are becoming mainstream rather than a niche area. A European option widens choice for investors who want to build diversification into their portfolio without compromising their principals. However, this fund excludes companies in industries that may do well. One example is companies involved in nuclear power, which it may grow in importance due to the need to find alternative energy sources.