Ethical investing is becoming an increasingly common theme for the modern investor. Increasingly, investors not only want to grow their wealth, but they also want to feel good about where that growth comes from. Climate change, the ongoing COVID-19 pandemic, and the many social justice movements that have gained traction globally over the past 12 months have all made people more aware than ever of the impacts the companies they invest in have on society and the environment.
So, it’s no wonder then that Australian Ethical Investment Limited (ASX: AEF) has seen its price rally 124% so far this year (to $11, as at the time of writing).
What is Australian Ethical?
Australian Ethical is a wealth management company with over $6 billion in funds under management (FUM). The company offers a range of managed funds (catering to various risk appetites), as well as superannuation and pension products.
Managed funds pool together cash from multiple individual investors, and then the fund manager decides on how to invest the money. A fund mandate document normally sets out the terms of the investment, including the fund’s strategy and any performance benchmarks – exceeding the annual return on the S&P/ASX200 Index (ASX: XJO), for example.
While other investment vehicles and exchange-traded funds (ETFs) just screen out companies that fall short of various environmental, social and governmental (ESG) targets, Australian Ethical claims to actively seek out companies that are doing good.
So, what does it invest in?
The managed funds in the Australian Ethical product suite are weighted differently according to their risk level and investment objectives. For example, the Australian Ethical Australian Shares fund, which is high risk and focused on long-term growth, invests heavily in the financial and healthcare sectors. However, one of its top ten holdings is New Zealand-based sustainable energy provider Contact Energy Limited (ASX: CEN), which claims that over 80% of its energy is generated by renewable sources.
Australian Ethical makes money by charging fees on its investment products. Operating revenue jumped 18% in FY21 (to $58.7 million), on the back of a 50% increase in FUM. Australian Ethical also earned a one-off $2.9 million performance fee on its Emerging Companies Fund, after it beat its one-year retail benchmark return by a whopping 17.3%.
Commenting on the result, Australian Ethical CEO John McMurdo stated: “The planets are aligning very quickly for Australian Ethical with societal, political and economic tailwinds pointing to a business case for responsible investing that is impossible to ignore.”
He went on to say that the company was “embarking on an aggressive growth strategy that reinforces [Australian Ethical’s] existing market share and expands it where we see the most potential.”
Recent moves in the Australian Ethical share price
After a brief dip around June and July, the Australian Ethical share price has taken off again. Since the release of the company’s full-year results on 26 August, the Australian Ethical share price has gained almost 16%.
And after those incredibly bullish comments from CEO John McMurdo, the Australian Ethical share price will definitely be one to watch over the coming months.