It's no coincidence that a lot of the big banks and investment managers across Australia now offer some sort of socially responsible or ethical investment fund. Whether this is because they have suddenly developed a deep social conscience, or because they think there's money to be made in offering socially responsible investment funds is up for debate.
Indeed, some mainstream managers have delivered impressive investment performance, including Perpetual Limited's (ASX: PPT) Ethical SRI fund which has consistently outperformed its benchmark S&P / ASX 300 (Index: ^AXKO) (ASX: XKO) over the past few years.
However, one micro-cap manager that might stand out from the crowd is Australian Ethical Investment Limited (ASX: AEF), which is Australia's only specialist ethical fund manger traded on the ASX.
The crashing oil, coal, gold and iron ore prices are an example of why many ethical managers have been able to post market-beating returns in recent years. Moreover, the trend toward ethically responsible investing may accelerate in sync with growing environmental awareness in Australia, where acceptance of climate science is still a long way behind the developed world.
This week Australian Ethical announced it expects a full year profit between $2.3 and $2.8 million, which is moderately above prior guidance provided in February of this year. The upgrade is due to strong FUM flows and appreciating equity markets supporting fee revenues.
Although it has no real moat, Australian Ethical's point of difference as an independent ethical manager provides a competitive advantage over ethical funds that are still part of wider corporate institutions, with a more ethically-dubious approach to making money.
Australian Ethical is also coming off a small base with a market cap around $53 million, and total FUM of just $1.16 billion under management as at 31 March 2015.
It's no secret that Australia has a huge and growing pool of superannuation money looking to find a home. Clearly just attracting a miniscule amount of what's available via superannuation could do wonders for FUM and revenues.
Moreover, if the group is ever able to build scale and demonstrate a five-year plus history of strong investment performance then I imagine the big money-spinning institutional mandates could come onto the horizon.
The stock is up 50% over the past year and 150% over the past two years. Today it sells for $50 on around 16.9x trailing earnings, with this year's earnings expected to be moderately higher. Throw in a 4% yield and it's arguably one of the best spec buys going in the micro-cap sector.
Although there is another business that's not the Motley Fool's top growth stock to buy now for nothing…
