Fund overview
The Royal London UK Ethical Equity Fund is managed using a bottom-up stock selection process combined with a top-down overlay, with stocks selected from eligible companies within the FTSE All-Share Index. Ethical screening is provided by independent research company EIRiS. The fund consists of a concentrated portfolio of 40-60 holdings and aims to deliver a combination of capital growth and income over the medium-to-long term. The fund is in the IMA UK All Companies sector and is benchmarked against the FTSE All-Share Index.
Manager
The fund is managed by Bradley Mitchell, who joined RLAM in 2004 and has more than 20 years’ experience of managing a broad range of UK equity portfolios. He has been the manager of the Scottish Life Ethical Equity Pension Fund since March 2004 and additionally manages the Royal London UK Growth Fund. Bradley has a degree in economics from Nottingham University.
Investment approach
The manager takes a contrarian approach to investing, looking to exploit moves in investor sentiment to build up positions in misunderstood and undervalued situations. This approach results in a portfolio of out-of-favour companies where the manager believes there is a catalyst to drive the market to reflect their true value over the longer term. Investment performance is primarily driven by companies offering the opportunity to deliver positive earnings surprises. Proprietary research and forecasting is a key component of the stock selection process. Overall positioning is influenced by the manager’s top down view, with the portfolio displaying a cyclical or defensive bias depending on the prevailing market conditions.
Ethical screening and criteria
In support of the fund’s investment research process, ethical screening is provided by EIRiS, a leading independent provider of investment research into the environmental, social, governance and ethical impact of companies. The fund’s ethical framework combines the avoidance of companies involved in excluded activities with a scoring system to identify best-of-breed companies in permitted sectors.
Companies that generate more than 10% of their turnover from any one or a combination of exclude areas are ineligible for investment. These areas are:
- Alcohol - involvement in brewing, distillation or sale of alcoholic drinks
- Armaments - manufacture of armaments or nuclear weapons or associated strategic products
- Gambling - investments in betting shops, casinos or amusement arcades
- Tobacco - growing, processing or sale of tobacco products
- Pornography - adult entertainment services
Screening is additionally applied in three areas where it is believed that companies have the opportunity to make a positive impact, as follows:
- Environment - companies which have a high environmental impact and which have ‘no evidence’ of appropriate environmental management systems
- Human rights - companies in strategic sectors operating in countries of concern, with ‘no evidence’ of policies or systems to manage human rights risks
- Animal testing - companies that test cosmetics on animals or provide animal testing services
Companies that do not have appropriate or adequate policies or systems in these three areas are ineligible.