Business News

Income fund embraces investor ethics

Martin Currie has revealed it has based its ethical income fund on environmental, social and governance (ESG) screens suggested by clients, in order to embed client values into the offering rather than dictating ethics from the top down.

The Legg Mason Martin Currie Ethical Income Fund was launched 18 months ago and is based on the its Equity Income Trust, which delivered 15.6 per cent including franking credits and before fees in the year to December 2016, bar five companies that do not qualify.

“The screen we use has been given and instructed to us by our clients,” Martin Currie Australia portfolio manager Will Baylis told selfmanagedsuper.

“Our clients came to us and said they really like our equity strategy and they needed regular income but they have ethical values so would we be able to use this screen accordingly, so we didn’t come up with the screen but we embraced and used the screen we were given to us by clients.

“I do understand that there are some fund managers around the globe who claim they know what ethical investment is, but where we’re very different to them is we’re not saying: ‘These excluded activities is our view of ethics.’

“And because the clients ultimately own the money in our fund, it’s the clients’ values that are embedded into the fund, and that I think is maybe an important distinction from some of our competitors.”

Baylis also revealed the genesis of creating an ethical ESG overlay over the manager’s equity income strategy, worth about $250 million, came from an existing client about three years ago.

“What that tells us is ethical values have appeal to other like-minded investors,” he said.

“If you think about SMSFs, they are part of this transfer of wealth to the next generation, and the next generation are demanding more and more research and transparency on the types of companies that funds are investing in.

“So while I’d say not many SMSFs really embrace ethical investing today, as this transfer of wealth continues there will be a lot more interested parties within that sphere.

“Also the timing is interesting in terms of the greater awareness of renewable energy and a low carbon footprint, which is the objective of this fund.”

Legg Mason Australia and New Zealand managing director Andy Sowerby added: “It’s early days for us with this product, but we absolutely believe income matters and within that there is this subset of investors who care about their investments lining up with their own ethical values and philosophies.

“We are hoping to consider what values look like for investors going forward.

“For example, we don’t screen sugar out, but it may be in the future a screen that becomes really important to our clients, so that’s where we’d evolve the existing strategy.”

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