Karin Wasteson 2017-12-01 07:30:38
FEEL GOOD FUNDS
K, Sue Round, picks out water, executive pay and speed of information as the big issues affecting her funds today
Launched in March 1988, the EdenTree Amity UK Fund is one of the oldest ESG funds in the UK, and Sue Round is one of the country’s longest-serving fund managers.
Despite her long tenure, Round admits she landed her first job in fund management by accident, having originally wanted to become a fashion buyer in retail.
As for being a woman in the financial services industry back then, she says there were actually two women at the investment trust management house she joined in her first role as an office junior. “I never felt I was coming into a completely male-dominated industry, until later on when I discovered that all the people who worked on the operation side were men.
“I didn’t really know what I was getting into, but I found it such an interesting and varied industry.”
The greatest change today is not about gender, she says, but more to do with technology and the speed at which we can gain information. “Access to information has transformed now compared to how it used to be. Everything has speeded up.”
When Round joined the industry, fund information was published much less frequently. “One of my jobs was to file all of the daily updates,” she says. “They used to come in an envelope, with company results and dividend announcements. When you have a piece of paper in your hand, you actually look at the small print.”
EdenTree, until last June known as Ecclesiastical Investment Management, has £2.4bn under management and runs six screened funds under the Amity name. The £137m Amity UK is the flagship fund and Round’s self-confessed “baby”, though the range also includes funds with an international, US and Asia focus.
At EdenTree all 30 employees are located on the same floor. In Round’s view, a flat structure and lack of barriers allows the organisation to be much more agile. “The sales guy can wander over and talk to one of the fund managers. There aren’t the barriers I suspect you get in other organisations.”
Ethical choices
Since the firm launched its first ESG fund in 1988, many of the screening filters Round was considering at the time no longer apply.
For example, Apartheid was still going on in South Africa at the time. She says: “The criteria was that we avoided companies that had an exposure of more than 10% in revenue or profits coming from South Africa. Most of the companies working in South Africa at the time were really supportive of local communities through medical care, education and family support, in ways that really surprised me.”
Round has learned that if you are running any kind of fund with a responsible approach, you need to remember that no political issue is ever as simple as it first seems.
“You start from a position of not wanting to be seen to be supportive of a regime, then often you realise these companies are actually doing something really positive.”
Today, alcohol is a case in point, says Round. “Is it really ethical to exclude alcohol? Is alcohol still a problem for the mainstream investor? Many alcohol producers do a lot in terms of charity, sponsorship and community work.”
According to Round, it is important to distinguish between what are actually char-acteristics of the business and how much is about personal behaviours when it comes to making responsible investment decisions.
EdenTree avoids alcohol, tobacco, arms and gambling, as well as animal testing for household goods. Its broader theme is environmental improvement.
“The key things I’m looking for are any companies working in areas that support environmental improvements,” she says, stressing this spans a huge spectrum of different industries. “It could be anything from making switches and filters through to water treatment solutions.”
Back to basics
Round is a long-term fundamental value investor and typically looks at balance sheets, cashflow, dividends, ability to pay and valuation metrics. The fund manager asks her clients how they feel about certain issues, and says corporate governance, executive pay in particular, is a hot topic right now.
Round’s ability to switch between sectors is restricted because 25-30% of the FTSE All Share companies are being screened out. Mid-cap is where the UK fund is currently finding most of its opportunities and Round is keeping an eye out for distressed valuations.
“Mid-cap has been hit particularly hard since the Brexit vote. There are some sectors, such as housebuilders, that have been hit.” On the other hand, Round remains underweight mainstream banks, and she cannot see anything improving that outlook.
With regards to its international equities exposure, the fund holds stocks in a Chinese traditional medicine company, and Round says it is very much a stockpicking fund.
Her advice when managing money would be not to panic and to sometimes just “walk away” from the screen.
“Sometimes you do need to not let the nerves get to you because you would be pushed into making moves that would be wrong. We don’t get it right all the time but often there is too much noise, too much short-termism.”
She adds: “Brexit is a key event but no one knows exactly what will happen, certainly not in the first few days or weeks. If you’ve got a portfolio that is focused on what you know people want – food, shelter, healthcare – then you are OK. Also, we still need to have strong companies in the environmental area, because that regulation is not going to go away.”
Supply and demand for water is a huge issue today. Round says that while shortages are not a big issue for the UK yet, in the US and parts of Africa it will be a real problem.
In anticipating this problem, the fund has invested in a high-risk technology company that makes an environmentally friendly washing machine that uses pellets instead of water. “It is not going to be used by individuals yet but is being adopted by hotels and hospitals. In the US it is moving forward quite quickly,” she says.
“While they are a bit riskier, there is a definite need for this kind of business. It’s quite exciting when they grow and become more mainstream, like Dyson.”
Sound as a pound
With regards to the UK economy, Round thinks the pound has behaved exactly as predicted: “It’s a no-win game, and if you’re investing in a range of companies on an international basis, you will win on some and lose on others.
“We are all about the underlying companies and businesses,” she adds.
“I believe sterling will roughly stay where it is. If as a country we are attractive to investors, then I wouldn’t be surprised to see more M&A going on, which may or may not be a good thing.”
The solid legal framework of ownership of companies and property in the UK is why the domestic market and London in particular are still going to be attractive for overseas investors as a centre for safety, according to Round.
“Asian and Middle Eastern investors want a safe home, and London won’t lose that quality overnight just because we are not part of Europe,” she says.
In terms of whether there will be a recession in the UK in the near future, Round predicts there will be a slowdown over a period of time but nothing catastrophic.
“I have absolutely no idea how bad the slowdown is going to be, and I don’t think anyone knows. If you read what the media is saying you’d probably be going away and slitting your wrists.”
Looking further into the future, Round believes responsible investing is the way to go. She explains: “If you think about all the companies that have gone wrong through poor business practices, the reputational damage caused by poor supply chain management is huge.
“Managing the ESG risks as part of an integrated strategy is a very good way of making investment decisions. Studies have started to show that over the long run this is the way to create the profit we want for our clients – with principles.”
‘ACCESS TO INFORMATION HAS TRANSFORMED NOW COMPARED TO HOW IT USED TO BE. EVERYTHING HAS SPEEDED UP’
‘WHEN YOU HAVE A PIECE OF PAPER IN YOUR HAND, YOU ACTUALLY LOOK AT THE SMALL PRINT’
‘ASIAN AND MIDDLE EASTERN INVESTORS WANT A SAFE HOME, AND LONDON WON’T LOSE THAT QUALITY OVERNIGHT JUST BECAUSE IT IS NOT PART OF EUROPE’
BIOGRAPHY
Sue Round is director of group investments and fund manager at EdenTree Investment Management. Prior to this, she was an investment analyst at Ecclesiastical Insurance Group in 1984, having also spent five years at Philip Hill. Funds under her jurisdiction include the ethically screened Amity UK Fund. Round also runs for the UK Equity Growth Fund.
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