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Investment Focus: Aegon Ethical Equity Fund
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Investment Focus: Aegon Ethical Equity Fund

26 April 2011 / by Paul Dicken

The Aegon Ethical Fund invests in UK equities along ‘dark’ green criteria, excluding certain companies from investment. We asked the fund manager Audrey Ryan how the fund sticks to its ethical principles while aiming to generate a return for investors.

You can invest in the Aegon Ethical Equity Fund at 0.00% initial charge through Fair Investment Company »

1. How long have you worked with socially responsible investment (SRI) funds at AEGON?

I’ve worked in the investment industry for 16 years, and been with AEGON for 13 years. I took over management of the Ethical Equity Fund in 1999.

2. Does being an ‘ethical’ UK equity fund manager significantly restrict your investment options?

There are of course restrictions on the types of companies the fund can invest in. Our process involves an initial screening using the Ethical Investment Research Service (EIRIS) followed by our in-house corporate governance and ethical research screening. Obviously, this screening procedure automatically rejects certain companies, for example those that deal directly in arms or tobacco.

However, after the ethical screening process has been applied, we are still left with a range of companies to consider investing in. And at this stage we can put our proven investment process to work, as we would in any of our other funds, to identify profitable opportunities within the stocks that meet our strict ethical criteria. Perhaps the best way to highlight this is to look at performance; although, past performance should not be seen as a guide to future performance.

To the end of March 2011, the Ethical Equity Fund has achieved a top quartile [top 25%] performance against its Lipper [fund researchers] peer group for the year-to-date. On a longer-term measure, the fund sits in the top quartile over 1, 5 and 10 years (it is in the second quartile over three years).

It’s important to point out that the fund’s Lipper peer group includes all funds in the UK All Companies sector and not just funds that are managed in accordance with ethical criteria. In this context, the long-term performance figures are very pleasing. It shows that while the fund’s investment options are restricted, its potential to outperform is not.    

3. How would you describe the approach of the AEGON Ethical Equity Fund?

As mentioned above, our approach is to firstly screen out unethical investments. After the initial screening by EIRIS, we look at individual companies and evaluate the effects their activities, products and services have on the environment and society; we believe it is more important to apply our ethical criteria at a company level rather than simply ruling out sectors. Our in-house ethical research draws on the best external information and analysis available.

Crucial to our approach is how we generate performance following this process. Through active management, we focus on identifying strong investment ideas regardless of market conditions. We combine a top-down and bottom-up approach, considering macroeconomic influences and sector specific drivers to a company’s prospects.

As well as these fundamentals, we look at valuation of stocks and technical factors affecting share prices. We also meet with companies, which can provide valuable insights on their strategy and help identify factors that could drive stock prices.

Another key feature of our investment philosophy is that we place a great deal of emphasis on teamwork. All members of our team express their views and have an input to the shape of the portfolio. 

4. What does the term ‘dark green’ mean in relation to the fund?

Our ‘dark green’ approach refers to the negative screening we apply to form the investable universe of stocks we can invest in.  Typically, ‘dark green’ ethical funds have stricter ethical criteria than ‘light green’ funds, which may invest in companies that are considered to be ‘best in sector’.  

We have 12 ethical screening criteria for selecting investments. For example, we do not invest in companies that operate in countries with poor human rights, or companies involved in activities considered environmentally unsound, or that have been convicted of serious pollution offences.

See the table below for more information or view other ethical investments here»

No news, feature article or comment should be seen as a personal recommendation to invest.

Performance data above is based on Lipper data at 31 March 2011, bid-to-bid figures, with net income reinvested. Past performance is not a guide to future performance.

The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors.

Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are in any doubt as to the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

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The value of investments and any return from them can fall as well as rise and you may not get back the full amount invested. Please ensure that you read the Important Risk Information below.