Our Ethical Share Portfolio: ‘Dark Green Opportunities’

B7wTT5HCEAAyU0aOur ‘Dark Green Opportunities’ portfolio is an Australian Share portfolio we have designed for investors who want to invest ethically. It involves an optimised passive strategy, designed to give investors a low cost index solution with a robust investment process.

The process involves negative screens that filter out activities that are undesirable from an Environmental, Social and Governance (ESG) perspective, positive screens that favour sustainable business practices, and a size, sector and valuation overlay.

Separately Managed Accounts (SMA’s) are share portfolios which allow you to have the benefit of a portfolio of direct shares packaged like a managed fund, which allows you to have a less active approach than managing individual shares. Instead of buying units in a managed fund, when you purchase a SMA you are actually purchasing each individual investment. This gives you more transparency over the assets you own, as well as more control over capital gains tax and switching investments. You are the beneficial owner of the underlying securities and that means you receive the dividends and franking credits from the underlying shares.

A key benefit of a SMA investment is that unlike a managed fund, you are not invested in ‘common’ units, but rather the underlying shares are recognised as held for your account. This means if assets are sold, you will pay tax on your share of the profits from the date you joined the portfolio, not from the date the portfolio started, nor for realisations for other investors. This means you will not ‘inherit’ capital gains from previous events, or other investors’ actions.

When you invest in SMA’s via an administration platform, this allows you to have a ‘single view’ of your Australian share holdings via your statement or your online account. This gives you instant access to reporting and allows you to determine your overall portfolio returns, and easily compare to relevant benchmarks.

JustInvest developed this ethical share portfolio for our clients to access in their Superannuation (SMSF) and Investment accounts. Our investment process includes:

  • Applying a negative screen to all the shares listed on the ASX to remove from consideration all the companies that have unwanted direct or indirect industry exposures
  • Applying a positive screen to rank the remaining companies in order of the Environmental, Social and Governance (ESG) scores
  • Overlaying a positive filter to ensure a balance of small, medium and large sized businesses. This filter also sorts the available shares into ranking according to their current valuation. They believe this approach helps investors reduce the risk of investing in a manner where ESG (Environmental, Social & Governance) compliance is paramount to the investor while still aiming to provide returns consistent with the unconstrained market
4 Risk Return trade-off for the last ten years
Risk Return trade-off for the last ten years (Source: InvestSense)

NEGATIVE SCREENING

  • No direct or indirect exposure to:
    • Fossil Fuels
    • Uranium
    • Defence Industries
  • No direct exposure to:
    • Other extractive Industries
    • Gaming
    • Alcohol
    • Tobacco

POSITIVE SCREENING

The portfolio is designed to hold fundamentally high quality companies, with a bias against the most expensive (overvalued) stocks in the market, after screening for ESG factors. The bias towards companies with high ESG ratings is created utilising rankings from research house CAER (Corporate Analysis. Enhanced Responsibility).

POSITIVE FILTER

We then construct the portfolio with an overlay of a forward looking valuation assessment, a size and sector bias, and back testing:

 

For more information about SMA’s: Article – The rise and rise of sma’s (Oct 2015)

Note: These portfolios are only recommended to clients in conjunction with our financial advice process. This involves detailed consideration of your financial objectives and considers your risk profile, ethical criteria and other factors relevant to your individual situation. Past performance is not an indicator of future performance.

Get in Touch..

Contact Us Speak to JustInvest Financial Planning today on (08) 9322 1110 or send us an email to find out how investing responsibly can help you grow your wealth.