Investor Views: 'I'll Stick With Sin Stocks, Thanks'

Peter Hicks is concerned some funds are jumping on ESG as a bandwagon

Emma Simon 20 January, 2022 | 12:26AM
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Peter Hicks doesn’t follow the crowd when it comes to his investments, and has taken a contrarian view, particularly when it comes to ESG-focused funds.

“I am a bit suspicious of ESG, especially as it seems to be such a buzzword today," says Hicks, now in his late 20s.

“I'm just not convinced everyone is doing it properly, or for the right reasons."

In particular, he is concerned some funds are jumping on ESG as a bandwagon, and that the “green” badge is used as more of a marketing tool than an actual strategy.

Peter also says that there are a number of societal issues that don’t seem to be covered as part of a fund managers’ ESG-remit. For example, he says there is not enough focus on social mobility in funds' approach. In the UK, for instance, it is increasingly difficult for people to get onto the housing ladder at a young age.

“The current energy crisis is another worry,” he adds.

However, he says ESG can encompass a lot of so-called ‘sin stocks’ anyway, which he personally doesn’t have a problem with.

“I recently invested in a couple of tobacco and gambling companies because they'd experienced an ESG sell-off and were good value," he says.

"I know everyone has different views but I personally don't see the problem with smoking or gambling, it's an individual's choice and they know the risks. The companies still provide jobs and tax revenues. And ultimately, we need arms companies to help maintain defence and security.”

The World's Largest Democracy

Brighton resident Hicks has worked in the financial services industry for around five years, and currently works in the venture capital trust (VCT) sector. When it comes to his own investments, he is targeting growth.

Most of his money is in a Sipp, but he also has a stocks and share ISA, which he is using to help build funds for a house deposit. Both are held with Chelsea Financial Services. He contributes monthly to both, to take advantage of pound cost averaging — which he points out has been very useful in recent months when markets have been volatile. He invest in both funds and direct shareholdings.

Despite being under 40 and saving for a house deposit, Peter has not opened a Lifetime ISA, the government-backed vehicle designed precisely for that reason. It offers a 20% bonus, similar to the basic-rate tax relief paid on pensions and Sipps.

“I did consider it but they can only be used to buy a property worth £450,000 or less, and given the trend in house price growth this seems a redundant vehicle for anyone buying in the greater London area, where the average first time house is now £489,000," he says.

In addition, he points out this cap was set five years ago, but property prices have increased significantly since then. To make matters worse, those trying to buy a property over this limit can find that HM Revenue & Customs (HMRC) effectively claws back the bonuses paid on the account to date. Figures show HMRC clawed back £34m in LISA relief in 2020/21 from investors, many of whom may have fallen into this trap.

Aside from his sin stocks, Peter has invested in a number of active funds. Despite his concerns regarding the ESG bandwagon, his most successful holding is a sustainable fund. Stewart Investors' Indian Subcontinent Sustainability has had excellent returns. 

“India seems to be to be a country with massive potential and is also the world’s largest democracy. I am investing in this fund for the growth opportunity it offers," he says.

This fund has a silver-medal from Morningstar as well as a five star rating, reflecting its strong growth in recent years relative to peers.

Morningstar analysts say the fund’s “best-in-class portfolio manager, solid investment team and time-tested investment process continue to make it one of our favourite Indian equity offerings.” However its analysts note fees on this fund are higher than rival offerings.

No problem for Hicks, who is more interested in performance than price, and on that metric the fund has delivered. According to Morningstar data, investors have seen consistently high returns, with annualised returns of 16.13% over the past three years and 15.15% over 10.

Active Backer

As well as investing in emerging markets, Peter says he also looks at growth opportunities closer to home, and has seen good returns from Slater Growth.

This fund invests largely in UK equities, and has a silver quant rating from Morningstar. The manager, Mark Slater, focuses on under-valued shares that have the potential for significant re-rating. This strategy appears to have paid off in recent years, with investors seeing annualised returns of 22.74% over the past three years. It’s longer-term record is also strong, with annualised returns of 14.5% over the past decade.

While Hicks says most of the investments he has made to date have been successful, it is inevitable there are downturns along the way.

“I currently hold shares in Frontier Developments, a gaming company, which has taken a bit of a hammering after poor earnings.” But he says he is sticking with these shares for now.

“Thanks to my job I am lucky to be around colleagues who know a lot about investing and this has allowed me to make informed choices. The power of good research goes a long way. In most cases I am a believer in active management and there are a many good managers out there with successful track records," he adds.

“Given the fact that inflation is surging again, and deposits are paying meagre returns it seems to make sense to look at investments as a way of building future wealth.”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk