Eureka Report correspondence

Finding ethical LICs.

Ethical investing?

I am treasurer of a church. Some of our members would like our investments to be more ethical.
Are you aware of any LICs that try to be fairly 'ehtical' in their investment choices.
I would value you opinions in this tricky area.


Regards, Martin

From Mitchell Sneddon:

Hi Martin,

Funny coincidence I received your email about ethical LICs, because just yesterday I sat down with the investor relations person from the only LIC that describes its style of investing as ethical.

The only ethical LIC available to Australian investors is Hunter Hall Global Value Limited (HHV). It's an LIC managed by Peter Hall and his team based out of Sydney. The LIC has a market cap of $274m and invests in global equities including Australia with typically a small cap focus. The team also actively manage the currency exposure.  

The LIC has been on the market since 2004. Since inception the portfolio has returned 7.6 per cent pa, beating its benchmark by 1.5 per cent pa. 

Performance wise, HHV has been up and down but the ten year total shareholder return numbers are good compared to its global peers and the index. It still does not match my preferred international LIC, Magellan Flagship Fund (which is coming up to its tenth year so come the end of this year we will have those numbers to compare) when it comes to the the one, three and five year numbers. But it does beat out Platinum Capital (PMC) and Templeton (TGG) when it comes to TSR.

Another note on recent performance. HHVs two biggest holdings were two of the best performers in the Australian market for the last 12 months and still the portfolio has had a negative return. You have to wonder how poorly some of the other picks have done to detract from that performance. 

HHV has struggled closing the price to NTA gap and in the past the only time they came close to closing it the board raised capital at a discount and blew the gap right back out again which has not been close since. I was told Peter Hall was permanently relocating to Australia from the UK. This will increase chances for him to get in the media and conduct shareholder presentations etc. to get the marketing effort up. This will help close the gap but of course performance will be the main driver. Time will tell.

Finally on the ethical side of things. HHV is a member of Responsible Investment Association of Australia. HHV conduct negative screening when it comes to stock selection. This means they avoid companies that derive revenue from the sale or manufacture of weapons, tobacco, gambling, anything harmful to animals, destruction of the environment, fossil fuels and anything relating to uranium mining. 

Given the above list you have to wonder where HHVs largest holding St Barbara fits on that list with its mining operations in Papua New Guinea. You would think any mining operation would fall into the category of "unremediated destruction of the environment", but the investments have been cleared by an auditor (CAER) as being ethical. I am no expert in environmental impact so I am going to leave that one alone. 

At the end of the day there is only one LIC that claims to be investing ethically, so I guess if you want to go for the full ethical angle you don't have a choice! 

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