Responsible Investment delivers more than just the feel good factor  

Lonsec releases 2014/15 Australian & Global Equity Responsible Investment (RI) Sector Review

RI Australian Equity funds: positive performance and reduced volatility

Leading research house Lonsec yesterday released its 2014/15 Australian & Global Equity Responsible Investment (RI) Sector Review, highlighting positive performance and reduced volatility for RI Australian Equity funds.

The report revealed that the Lonsec’s Australian equity RI peer group average returned 15.7% for the year to August 2014 and 17.1% p.a. for the three year period, outperforming both the ASX 300 index (14.2% over 1 year to August 2014 and 14.0% p.a. for the three year period) as well as the Lonsec ‘core’ Australian equity peer group (13.8% and 16.6% p.a. over the same periods respectively).

“It’s a common misperception that responsible investment will not achieve a reasonable rate of return on their funds but in reality this is clearly not the case,” said Steven Sweeney, Senior Investment Analyst at Lonsec and principal author of the report. “Pleasingly, while a niche segment, a number of the funds have generated a strong alpha track record over a reasonable period.’

Published for over a decade, Lonsec’s RI universe includes funds adopting a variety of intensity in their responsible investment philosophy from traditional ethical funds that screen out perceived ‘bad’ companies through to ESG funds that look to invest in sustainable companies across the market spectrum that rate highly on ESG factors.

“The challenge for advisers is to recommend the right funds that align with their clients’ ethical investment motivation,” Mr Sweeney said. “Traditional ethical funds have different approaches to ESG funds. For example, some fund managers, such as Perpetual, Australian Ethical and Hunter Hall are providing fossil fuel free options within the Lonsec universe while other Funds are not exempt.”

“Lonsec aims to provide a roadmap for advisers to help them provide suitable fund selection suggestions to meet their client’s objectives,” Mr Sweeney said.

Other key findings of the report include:

• RI funds are more likely to struggle when compared against the benchmark and mainstream peer funds in strongly rising or resource driven markets.
• Most Australian equity RI funds recorded lower volatility than the index over one and three year periods to August 2014.
• There is a recent trend to improve internal RI resourcing to supplement the external service provision.

The 2014/15 Australian & Global Equity Responsible Investment Sector Review covered seven Australian equity and two global equity funds. Lonsec awarded its premier ‘Highly Recommended’ rating to the Perpetual Wholesale Ethical SRI Fund. Five funds were assigned a ‘Recommended’ rating.