Ethical screen no impediment to adviser portfolios
A panel of responsible investment (RI) experts has rejected suggestions that using a negative investment screen to exclude companies with non-RI behaviours will lead to lower returns for investors and dissuade advisers from adopting RI for their clients.
During a session at the Responsible Investment Association of Australasia conference, UCA Funds Management portfolio manager Greg Chapman said its negative screening process cut out up to 20 per cent of ASX market capitalisation.
Major listed companies like Rio Tinto, BHP, and Woolworths were excluded from the investment portfolio because of their links to uranium production or gambling, Chapman said.
However, Chapman and other panellists rejected suggestions that cutting out so many companies with large market capitalisation would hinder advisers adopting RI.
Chapman said that five-year data showed there was almost no difference in performance between their ethical portfolios and the ASX300.
While five years wasn't a long enough time frame from which to draw any long-term conclusions, it appeared that from the data available that there wasn't a great deal of difference in performance, he said.
However, he admitted that there were shorter investment periods where ethical stocks would either underperform or outperform the market, and advisers needed to consider that.
Chapman suggested that excluding companies with questionable practices could lead to better long-term returns for investors because those companies would cease to exist in the long term.
An RI portfolio could also be constructed in such a way as to reduce the risk of volatility in a portfolio, AMP Capital Investors senior investment specialist Angus Dennis said.
CAER company secretary Konrad Knerr said claiming that reducing one's investment universe would lead to long-term negative outcomes was a furphy.
However, there are some differences between what people consider ethical behaviour, Chapman said.
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