Ethical Global Equity

Analysis: For some, investing is more than just making money. They want to know that they can make a difference by investing only in companies that are helping make the world a better place. Ethical Funds were one of the first companies offering to Canadian investors, and this fund is their global equity offering.

It is an all cap, go anywhere global equity fund that is managed almost like a fund of funds. Manning Napier has three distinct investment strategies that it allocates to based on their outlook of the world. The first strategy is their strategic profile, which is focused on identifying undervalued companies that they believe are positioned for strong growth.

The “hurdler rate” strategy looks for companies that are operating in sectors experiencing trouble, but are strong enough to survive and likely to lead the rebound when things turn around. This strategy is usually how they play in the cyclical space.

The “bankable deal” strategy is very similar to traditional value investing, where they look for companies that are trading at significant values to what the managers believe to be the company’s true value. They are typically looking for companies that are 40% to 50% below their true value.

In addition to the traditional stock selection process, Ethical Funds are very active shareholders and often engage company management to make positive changes within their firms.

The portfolio is very well diversified holding nearly 100 names. It is an all cap mandate, but the majority of the companies in the portfolio are larger, more recognized names. Because of the unique investment process uses, the portfolio looks much different than its benchmark. It is significantly underweight in financials and utilities, and overweight in technology.

Performance has been largely uninspiring. As of May 31, it has an annualized five year return of 1.2%, which is less than half the gain in the Dow Jones Global Total Return Index. A big reason for this underperformance is the high cost of the fund, which carries an MER of 2.71%, which is well above the category average. Volatility has been higher than the index.

Despite the above, this is one of the best SRI options available in the global equity category. It is our opinion that investors looking for SRI exposure might want to consider looking at the NEI Ethical Global Dividend Fund, which is managed by KC Parker of Beutel Goodman. It offers a slightly more favourable risk reward profile and a lower cost.