Aberdeen Ethical World

Aberdeen Ethical World is a strong ethical fund whose global mandate makes it even more compelling for certain investors.

Tom Whitelaw 30 September, 2008 | 12:25PM
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The investment philosophy and process applied to this fund mirrors that employed on Aberdeen World Equity. It is managed from Edinburgh by a team of 14, including six portfolio managers who are directly responsible for stock selection and five dedicated SRI analysts and researchers. This team collates all research and analysis from the firm’s global offices where managers and analysts assess stocks from the bottom up. They seek attractively valued firms that boast strong free cash flows, solid balance sheets and quality management teams. This creates a global buy list of around 330 stocks, which is then whittled down to a high conviction portfolio of between 40 and 60 of the team’s best ideas, all of which are used in the Aberdeen World Equity portfolio.

These stocks are then screened

for involvement in unethical activities using a variety of measures, ranging from direct meetings with management to research complied by EIRIS (the ethical researcher). Any company involved in animal testing will be removed immediately. The managers then set acceptable limit of 10% of revenue that can be derived from alcohol, gambling, tobacco etc and remove offending stocks. There is a small level of tolerance of these “unethical” practices to allow the inclusion of holdings where a modest amount of a company’s revenue is generated from these factors, such as supermarkets. They will then screen to remove companies who negatively impact the environment, or who have poor labour or human rights records. As a result of the screening process, the usual suspects fall out of the equation, e.g. Johnson & Johnson, British American Tobacco and AstraZeneca to name but three. However there are also more unusual exclusions; German energy provider E.ON is omitted due to the group’s pharmaceutical subsidiary which is legally required to conduct animal testing. Stocks that have to be removed from the model portfolio are usually replaced with similar alternatives but if one cannot be found the team is happy to be light that sector. For example, in healthcare the model Aberdeen World Equity fund currently has 13.5% exposure, but the ethical offering has just 2.2%.

In line with the World Equity fund the portfolio is picked from the bottom up, with the team looking to mitigate risk through diversification at a company level rather than by sticking close to the benchmark. As a result the fund deviates substantially from its FTSE World benchmark. Its exposure to the US is currently just 11%, compared with 45% for the benchmark. At a sector level the fund is also substantially underweight sectors such as energy and industrial materials, due partly to its ethical screens, but mainly thanks to its strict valuation discipline. Nevertheless, such a stance has not hindered performance and the fund, even with its ethical omissions, manages to sit in the top quartile of the Morningstar Global Large Cap Blend Equity category over the last three and five years to September 30.

Aberdeen Ethical World offers investors access to the ideas of Aberdeen’s strong regional teams whilst being ethically aware. We believe it suits socially conscious investors looking to add relatively concentrated exposure to some of the world’s higher quality, undervalued companies.

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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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
ASI Global Ethical Equity A Acc333.33 GBP-0.58Rating

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Tom Whitelaw