Lonsec awards Legg Mason Martin Currie Ethical Income Fund “Highly Recommended” rating


Reece Birtles

Legg Mason Martin Currie yesterday announced that it has been awarded “Highly Recommended” 1 rating for its Ethical Income fund (the Fund) from Lonsec Research (Lonsec). Martin Currie, with over $10 billion in assets under management in Australia, is an active equities fund manager affiliate of Legg Mason.

Launched a year ago, the Fund invests in a well-diversified portfolio of Australian securities which and aims to deliver a ‘sustainable’ plus growing dividend yield greater than the broader equity market, subject to an exclusionary responsible investment screen. The Fund is managed primarily on a ‘bottom-up’ basis with a bias to quality and actively consider Environmental, Social and Governance (ESG) factors for every company invested.

The firm combines internal bottom-up ESG research conducted by the analysts with external analysis from MSCI ESG which provides an independent check on controversial issues and appropriateness of investment. The Fund’s ethical screen investigates and excludes companies including those that have business involvement by more than 5% of revenue in alcohol, adult entertainment, defence and weapons, fur, gambling, genetically modified crops, nuclear power and tobacco.

The Fund also screens for ESG impacts where most notably it does not invest in companies that generate more than 20% of total EBITDA from thermal coal power generation, or generate more than 20% of revenue from thermal coal mining.

Speaking about the Fund, Lonsec review noted; “the Fund benefits from a well-structured process and a consistently implemented philosophy specifically targeting investors with an ethical objective.”

In particular Lonsec positively viewed the experienced investment team capably led by Chief Investment Officer, Reece Birtles who “has both global and domestic equity portfolio management experience and a background covering the Financials sector.”

“The large degree of alignment across the equity portfolios, particularly the income and ethical income strategies” was an additional comfort to Lonsec.

Legg Mason Martin Currie CIO Reece Birtles said; “We are very pleased that a leading research house recognises the quality of investment processes and philosophy behind the Legg Mason Martin Currie Ethical Income Fund.”

Lonsec also noted Will Baylis, co-Portfolio Manager and backup for Birtles in this Fund, as having been “instrumental in the development and evolution of this Fund, and in tailoring the product towards a broad responsible investment audience.”

Speaking about the Fund’s performance Lonsec said; “While the Fund has not yet attained a meaningful track record due to its recent inception, Lonsec notes the Fund holds similar portfolio characteristics as the Manager’s Equity Income Trust which has outperformed its peer group and benchmark over all periods to July 2016.”

It adds; “the Fund has a differentiated income objective and may appeal to ethically motivated investors seeking lower fossil fuel exposure portfolios. While a new offering, the Manager has delivered encouraging performance outcomes in its overarching income strategy.”

Lonsec considered that Legg Mason Martin Curie’s investment style to be “primarily ‘income’ driven for this strategy, with a general bias towards higher quality stocks” and “suitable for blending with other Australian equities strategies, including growth style-biased, absolute return and small cap funds.”

Lonsec noted; “At the time of review, 15 stocks were screened out from approximately 120 of the Manager’s income universe due to breaches of the ethical charter, and while this is not insignificant, this suggests the Manager is not overly restricted in idea generation by the impact of the screen.”

Lonsec also positively viewed Legg Mason Martin Currie’s analysis on its capacity based on ownership, liquidity and alpha potential, having experienced strong growth in recent years.

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