Ethical investing has been gaining a lot of interest from investors in recent years and that momentum has continued through 2019.
It is being taken more seriously and will have a long-term impact on fund management.
While the definition of ethical and the wider environmental, social and governance philosophy is likely to remain a contentious topic of debate, and clearly needs oversight, there has also been the issue of how to build a truly diversified portfolio that enables investors to access ethical philosophies.
The Architas Positive Future fund looks to address this issue for some ethical investors. This is an area where one fund is not going to be suitable for all investors, so understanding the detail and objectives of such a fund will matter.
This is a positive impact fund, so it is more specific than adopting an ESG overlay.
Instead of looking to avoid certain sectors, they are considering investments that address issues as highlighted by the UN Sustainable Development Goals.
One of the biggest issues and criticisms in this space is greenwashing.
Are analysts actually drilling down into what these funds are doing? Here a multi-manager arguably has an advantage.
Architas is already analysing funds and it is good to see the team have added dedicated resource to address the specifics of ethical issues.
The investment process is fourfold, including a filter that uses an ESG screen, followed by one that looks for funds where ESG integration is key to the investment process.
There are also sustainable and impact filters. The key to all of this is ensuring the managers are doing what they say they are.
Charges are another topic in the spotlight. Funds of funds naturally have higher charges, and typically, a specialist fund incurs additional costs due to the extra research involved.
The Architas fund has addressed this by combining active management with appropriate passive funds.
The fact that there are passive options available shows the extent to which this area of the market has evolved. The charges at launch were a palatable annual management charge of 40 basis points and an ongoing charges figure of 110bp.
This fund has a diverse range of ethical criteria and by its very nature is not going to suit everyone. However, for investors looking to adjust how their money is run and who want to adopt a more positive approach, it presents a very interesting option.
Adrian Lowcock is head of personal investing at Willis Owen
