Ethical funds: putting a label on the tin
The JPMorgan Funds umbrella recently launched an interesting new subfund: the Global Catholic Ethical Balanced Fund. Two things stand out: firstly, a particular set of ethics is defined and secondly, the fund is a UCITS aimed at the public.
In the environmental sector retail investment funds have long since diversified to meet demand for specific strategies such as “green energy” or “carbon efficient”. By contrast, though retail funds tailored for particular religious denominations are common in the United States, until recently, in Europe, such strategies were only visible in the institutional market: an example is the Anglican Church.
The first denominational funds to appear in Europe in significant numbers have been Islamic investment funds. Maybe this is about to change. LFF interviewed Gareth Witcomb, portfolio manager of the JP Morgan Global Catholic Ethical Balanced Fund and Marc Shaw, Client Portfolio Manager.
The idea for the Catholic fund came from JP Morgan’s Italian sales force, in partnership with Gruppo Re, a firm providing consultancy services to Catholic entities.
Gareth Witcomb explains the investment strategy. “ The fund will have a stable 50:50 allocation to equities and bonds, with a tactical asset allocation overlay that will be used to adjust exposure, allowing relative value plays.” An external company, ECPI, is being used to screen the stocks. “ ECPI starts with a universe of some 900+ stocks and screens for products such as alcohol, contraceptives, the military and for wider factors such as business sustainability and corporate citizenship. The result is an investible universe of some 400 stocks. We select from that list, based on our JP Morgan in-house research.” The European government bond element of the portfolio is managed by Gareth Witcomb and his team.
The tactical overlay is achieved through the use of derivatives” continues Witcomb. “Since it is not possible to buy futures on partial indices, this part of the portfolio may not be compliant with the underlying screen”.
P Morgan created the fund to meet demand from a particular set of clients. However, as part of their Luxembourg retail umbrella fund it is designed for worldwide distribution. “ We will look to get the fund registered wherever there is demand » explains Marc Shaw, who has already received requests from Luxembourg and from the firm’s sales team in Ireland.”
Oversight by an Ethical Committee
The ethical screen is guaranteed by several layers of control. In addition to the initial screening by ECPI the fund benefits from UCITS rules: all the investment guidelines are monitored internally by Risk Management and Compliance and are reviewed on a quarterly basis by the Investment Directors. An additional layer of control is provided by an Ethical Committee, which is convened by Gruppo Re and JP Morgan and will include members of the Catholic church to insure the screens employed by ECPI fully comply with Catholic principles.
In all other aspects the new sub-fund follows the norm with share classes aimed at different client groups and a standard monthly fact sheet. The same is true for the fund’s engagement policy, which is no different from any other fund. “ We have a proxy voting policy” explains Marc Shaw “ and when we have an issue we will express our opinions to that board”.
As the largest fund manager in Luxembourg, JP Morgan’s move is likely to be watched. They themselves are ready to study any new requests in this emerging sector. “ We’re not taking a religious view; we are meeting the need of a client” stresses Shaw, who adds that the firm already manages Islamic funds.
This is precisely why the move is interesting. In Malaysia, shariah compliant funds are widely purchased by non-Muslims because people feel comfortable with the ethical policy. In the aftermath of the financial crisis, denominational funds could fill a demand for transparency. ER