“We have seen the share prices of larger defensive businesses like Telstra, CSL and Ramsay Healthcare rise strongly over the past twelve months.  We have also witnessed the slightly bizarre situation of the Big 4 Australian banks outperforming the wider Australian equity market,”  said Andy Gracey, Portfolio Manager, Australian Ethical.

“The primary reason large banks have outperformed is the singular focus of investors on the yield, with the major banks currently offering a fully franked 6.7% yield on a market cap weighted basis.  We see this share-price out-performance as paradoxical given banks are highly leveraged to the domestic economy, with changes to consumer and business behaviour capable of wreaking havoc on bank profitability. 

“The unprecedented decline in yields on Australian commonwealth government securities together with the cuts in base interest rates by the RBA means sustainable yield is becoming harder to find.  This is highlighted by a risk free investment in 10-year Australian government bonds today offering a paltry 2.8% yield per annum.

“The cash rate which is perhaps more relevant to local investors is predicted to be just 2.9% by December 2012 if the bank bill futures are to be believed.  This may translate to financial institutions offering investors around 4.1% for cash and short term money by the end of 2012 (today the average spread for deposits is 1.2% on top of the 90 bank bill rate).

“Our funds have sought exposure to investments which offer sustainable yield.   These include utilities such as APA, Envestra and Duet. The yields on offer are reasonably attractive with stable contracted or regulated cash flows. The key risks are changes to regulations governing their return on capital and the relatively high level of gearing (albeit the regulator views a 60% gearing metric as appropriate given the stability of the cash flows). The likes of Duet also have an out-of-vogue management contract which means investors pay AMP/Macquarie Bank potentially large performance fees.

“We have increased our holdings of real-estate investment trusts “REITS” such as Stockland, Mirvac, Investa Office Fund and the Commonwealth Property Office Fund. This sector carried too much debt coming into the GFC but post raising new equity capital they now have what appear to be conservative levels of debt at between 20 to 30% of total assets.  The sector still trades at a discount to net tangible assets. Like Duet, Commonwealth Property Office Fund also comes with a management contract that includes a performance fee.

“We also continue to hold the Transpacific hybrids securities which are preference shares trading at 85 cents in the dollar. The health of these hybrid securities rests with the health of the ordinary Transpacific Industries share which today is solely focused on reducing its debt and attaining investment grade status.  We take some comfort that while interest coverage and Debt/EBITDA is not yet investment grade it is heading in the right direction and the debt metrics are not inconsistent with global integrated waste companies,” said Gracey.

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“After a period of internally led change, the Hunter Hall investment team has remained stable with no departures in the past two years. Pleasingly, the senior members of the firm are highly experienced and have managed money together for a considerable amount of time,” said S&P Fund Services analyst Anthony Karaminas.

“While the general structure of Hunter Hall’s investment process has remained stable, the manager has implemented a number of changes to make it more disciplined. On the whole, we view the changes positively, although we note that there have been a large number of enhancements over the past couple of years and we are keen to observe their continued positive effects,” said Mr. Karaminas.

Established on 28 February 2011, the Hunter Hall Global Ethical Trust – Hedged (GEH) is principally invested in an ethically screened global portfolio of manufacturing, service and distribution businesses. The objective of the GEH is to increase the wealth of its investors by substantially outperforming global stockmarkets, benchmarked by the MSCI World Total Return Index, Net Dividends Reinvested, Hedged into Australian Dollars (MSCI World Hedged), over the medium to long term without incurring significant risk to capital.

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The MCCA Ltd. Board of Directors is comprised as follows – Dr. Akhtar Kalam (Chairman), Dr. Zuhair Segu, Dr. Abdul Khair Jalaluddin, Dr. Zehdi Ferkh, Dr. Aladin Zayegh, Mr. Hyder Gulam and Mr. Mohammad Helmy.
 
MCCA started business in 1989 as a registered cooperative in the inner Melbourne suburb of Burwood with $20,000 and a vision to address the financial, banking and investment needs of the Australian Muslim community by offering Shariah-compliant housing mortgage loan products.
 
In 2010 MCCA celebrated its 21st birthday – a significant milestone for the business and a testament to its steadfast commitment to the organisation’s vision and values of Integrity, Excellence, Innovation, Faith and People.
 
In 2009 MCCA developed and launched the ASIC regulated MCCA Income Fund in response to a growing demand within the Australian Muslim community for a Shariah compliant investment based on ethical investing principles as an alternative to traditional / mainstream investments.
 
New product development plans are well advanced and MCCA Group is on target to release three new Shariah compliant products by the second quarter of 2011 –

• Property Trust
• Superannuation Trust
• Equity Trust
   

During his AGM address Dr. Zayegh also made mention of the Australian Taxation Board Review that is currently underway.
 
Dr. Zayegh said he welcomed the Review and hoped that it will address many of the anomalies that have adversely impacted on Islamic Finance and future Islamic Banking products and product development / innovation.

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• a 10% increase in managed responsible investment portfolios
• a 50% increase in responsibly invested financial adviser portfolios
• a 29% increase in Australian signatories to the Principles of Responsible Investment

Released at the “Inside RI” event on 15 November, Responsible Investment 2010 – the real facts about the growth and the size of RI in Australia and New Zealand, is the 10th annual Benchmark Report commissioned by the Responsible Investment Association Australasia (RIAA). It reaffirms that taking environmental, social and governance (ESG) issues into account has become best practice for those looking to improve investment performance in the short and long term.

In a time when many are still reeling from the effects of the global financial crisis, the consumer demand for responsible investment products has almost doubled with ethical advisor portfolios growing an extraordinary 50% from AU $972 million to AU $1.46 billion after a decrease of 21% in the 2009.

This was also confirmed at a community briefing held at RIAA’s 7th International Responsible Investment Conference in September 2010 with 93% of the attendees stating they would adopt a responsible investment approach in the future.

RIAA’s benchmark report shows that not only is responsible investment a smart choice, it largely outperforms the average mainstream funds over one, three, five and seven years for Australian shares and international shares. Balanced growth managed funds outperformed mainstream funds over five and seven years.

Since the difficult times investors were facing in 2009, the RIAA report reveals that core responsible investment (a combination of specialised managed funds, community finance, green loans, RI charity investments and financial adviser portfolios) rose 13% from AU $16.15 billion to AU $18.19 billion.

Furthermore, managed responsible investment portfolios alone rose 10% from AU $14.02 billion to AU $15.41 billion. Growth in responsible investment portfolios fared better than the broader market of managed portfolios which rose 9% in that same period.

“We continue to see world changing events in areas which are deeply interconnected such as climate change, energy security, water scarcity, food shortages and environmental risk which are all driving responsible investment. These issues have serious implications for societies, economies and the entire investment chain. The 2010 Benchmark report figures exemplify the disappointment experienced by more and more people about the inability of traditional financial models to recognise the inherent impact of environmental, social and governance issues on investments. Taking these issues into account is both profitable and smart,” said Louise O’Halloran, Executive Director of RIAA.

Another shining star in responsible investment is community finance. This dynamic investment strategy continued on a steady growth path increasing 15% from AU $1.16 billion to AU $1.33 billion.

Over half all funds under management in Australia are now signed to the United Nations backed Principles for Responsible Investment. The RIAA report shows there has been a rise in Australian signatories up 29% from 2009 with 112 Australian signatories now representing 14% of the globally signatory base. Funds under management for this group are approximately US $591 billion.

“This year’s study is the most expansive edition of RIAA’s benchmarking report to date including revised definitions; data on ESG integration levels in Australian fund strategies; an enlarged section on broad RI initiatives; the second annual Cleantech Report; a comprehensive list of the growing body of Australian-based ESG research; and a full RIAA membership directory. This report is a tribute to the ever growing list of accomplishments of the RI industry in Australia, and most especially to the members of RIAA”, said Louise O’Halloran, Executive Director of RIAA.

A copy of Responsible Investment 2010 can be downloaded from the RIAA website. (http://www.responsibleinvestment.org)

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