Green Effects Fund Celebrates 20 years of Ethical Investing
Richard Power
Richard Power
Director of Stockbroking

This year marks the 20th anniversary of the Green Effects Fund launch. The fund was originally set up as a response to the demand for a more ethical and socially responsible investment approach and for clients who wanted to make a difference with their investment portfolios. The area of ESG (Environment, Social, Governance) has seen a sharp rise in demand in recent years with climate change driving a significant part of the overall agenda for retail investors, corporate and charity clients.

What has driven the rise in the ESG agenda of late?
Climate Change: This is one of the most significant challenges of the 21st century and it has important implications for the investment community. A growing population means rising demand for energy, which comes with an increase in greenhouse gas emissions and rising temperatures globally.
Social Movement: Investors of all age groups and wealth profiles are increasingly looking to engage in the significant social and political agenda of ethical and socially responsible investing.
Long term investment returns: Evidence over the last 20 years has shown that investing in companies that do “good” has a proven long-term track record of enhanced investment returns. Over the last two years there has also been a notable shift in public and private investment towards all sectors that contribute towards the climate change and renewables agenda. Companies that are likely to be long term structural winners are more likely to have strong earnings.

Across governments and corporates there has been a seismic shift towards tackling the climate change agenda:

  • The EU Recovery Plan, aligned with the EU Green Deal, will allocate 30% of its announced EUR 1.8tr budget to climate-related investment over the coming seven years to reboot the economy.
  • US Democratic presidential nominee Joe Biden has outlined a USD 2tr climate spending plan to be implemented if he is elected in November.
  • Germany’s €130bn euro recovery budget focused firmly on climate-friendly industries and technologies. The budget allocated circa €41bn euros to areas like public transport, electric vehicles and renewable energy.
  • Microsoft has reiterated its goal of sourcing 100% of its power demand from renewable energy by 2025 and to become carbon-negative by 2030.
  • Apple has announced it will bring its entire carbon footprint for its supply chain and products to net zero emissions by 2030.

How are the stocks within the Green Effects Fund selected?
Stocks are taken from the NAI ethical index which is listed in Germany. The constituents within this index provide the investment universe for the Green Effects funds and are the only stocks in which the fund can invest. The index was established in 1997 with an initial list of ten stocks and has grown steadily to currently have 30 constituent members.

What is the inclusion/exclusion screening criteria of the NAI Index?
Unlike some of its peer funds, the NAI index criteria employ both a negative and positive screening bias within its selection methodology. Full details of the criteria can be viewed within the fund prospectus which can be accessed HERE.

A wide range of companies with a commitment to either supporting the environment or demonstrating a strong corporate responsibility ethos are represented. Sectors such as wind energy, recycling, waste management, forestry and water-related businesses all feature prominently. Negative screening ensures that companies shall not become a member of the index should they be involved in particular sectors of industry or employ unethical practices.

Can you talk us through some of the key investment themes within the Green Effects Fund?
Quite often we are asked about sectoral exposure and have noted below some high-level information to give investors a feel for some of the companies in the fund (based on fund holdings at 31/8/20 and subject to change).

Alternative Energy Paper/Forestry Water Healthcare Sustainable Transport
11.60% 15.40% 5.40% 14.90% 15.20%
Vestas Wind Systems Svenska Cellulosa Kurita Water Smith & Nephew Tesla Motors
Ormat PotlachDeltic Aegion Aspen Pharmacare East Japan Railways
Mayr Melnhof Boiron Shimano
Kadant Inc Molina Healthcare

Consumer Goods Recycling Construction Food Other
8.40% 7.40% 12.80% 1.10% 7.80%
Natura & Co Tomra Systems Kingfisher United Natural Foods Aixtron
Ricoh Company Stericycle Steico Sunopta Unweltbank
Steelcase SIMS Metal Acciona Cash (6% at 31/08/20)
Gaia Inc
Interface

Source – Northern Trust 31/8/2020

Over the long term how has the fund performed relative to peers?
We have outlined below the long-term fund returns versus its closest peers in the Irish and UK market.

Investment Name No of stocks 1 Month YTD 1 Year 3 Year* 5 Year* 10 Year*
Green Effects Fund 29 10.56% 24.85% 41.18% 14.81% 11.56% 10.90%
EAA Fund Sector Equity Ecology 55 5.53% 4.74% 15.53% 9.20% 8.59% 7.82%
ASI Global Ethical Equity A Inc 43 7.07% -0.48% 9.99% 8.31% 7.01% 7.02%
BMO Responsible Global Equity 49 4.97% 6.94% 18.01% 14.24% 11.48% 12.49%
Davy ESG Equity 54 5.55% 1.39% 9.73% 12.18% 9.13% -
Impax Environmental Markets 63 6.25% 1.42% 19.31% 15.47% 16.20% 12.73%
New Ireland Ethical Managed - 1.60% -11.70% -3.10% 1.80% 3.90% -
Pictet- Global Environmental Oppor 47 3.56% 7.15% 17.65% 11.65% 11.38% -
Setanta Reditus Global Equity 87 1.57% -10.13% -3.34% 4.21% 6.09% -
SLI GS II Global Equity Impact 46 4.43% 4.79% 13.28% - - -

As of 31.08.2020 in EUR
Source- Morningstar (3*yr, 5yr, 10yr returns are annualised)

Green Effects Fund NAV Price Since Inception

Source: Bloomberg

Warning: Past performance is not a reliable guide to future performance. The value of your investment may go down as well as up.

From an exposure perspective how would the Green Effects Fund differ from a typical global equity fund?
While US technology stocks (FAANGs) continue to dominate the US stock market, Tesla Motors is the only stock falling within that realm that is currently listed within the Green Effects Fund. Other sizeable sectors that do not feature in the fund are oil & gas, banking & insurance and gaming. From a concentration perspective the Green Effects Fund is currently invested in 30 stocks.

What types of investors can invest in the fund?
The fund is open to all investor types with a minimum investment of €5,000. This includes personal, pension, ARF/AMRF, corporate, charity and trust clients.

What is the risk rating of the fund?
The fund currently holds a risk rating of 6 under the ESMA risk guidelines. Investors should note that this rating is subject to change and underlying market conditions. The fund is suitable for clients with a high risk profile and investors should review the key information document (link here) and the fund factsheet (link here) prior to investing.

What are the fund charges?
The fund is available on the Cantor Fitzgerald investment platform and the following charges apply
• Upfront commission 3%
• Annual management charge 0.75%

Why should investors consider the Green Effects Fund?
Investors across the spectrum are increasingly showing interest both in better understanding the positive and negative impacts of their investments on society and the environment, and in incorporating these considerations into how they construct and manage their portfolios. We see this even more so within the pensions area of our business where investors specifically plan for the medium to long term.

Despite a lot of the reasons to consider sustainable investing, there remains a limited number of options available within the Irish domestic market.

For investors with the appropriate risk appetite we feel the Green Effects Fund offers a credible ethical investment solution which is unrivalled in the Irish marketplace. The fund has a proven 20-year track record, a flexible investment structure and accessibility across all investment account types.

Richard Power is Director of Stockbroking at Cantor Fitzgerald Ireland and is Fund Manager for the Green Effects Fund.

For further information on the fund email greeneffects@cantor.com. Alternatively, contact details for each individual team member can be accessed here on our website should you wish to speak with a Portfolio Manager or Account Executive.

Warning: Past performance is not a reliable guide to future performance. The value of your investment may go down as well as up.