Ethical Investing Shows Better Performance During COVID-19

Funds on the Mindful Money platform have outperformed the average

International and New Zealand data show that ethical funds have been resilient in the current crisis. Analysis of returns for the first quarter of 2020 show that ethical KiwiSaver funds on the Mindful Money platform have significantly outperformed the average in the COVID-19 crisis.

Mindful Money’s founder and CEO, Barry Coates commented: “Investors are always looking for an X-factor, especially now that they are losing money from their hard-earned savings. These results show that ethical funds have been resilient during the COVID-19 crisis so far. The companies that manage their environmental, social and governance risks have had lower financial losses, and even some gains, in the financial downturn.”

“KiwiSaver investors need to ensure they are making the right ethical choices, as well as being in the right risk category. This analysis of quarterly results shows that being ethical doesn’t mean a financial cost – in fact, it shows that investors can have both good financial returns and do good for the environment, the climate and people.”

The ethical funds on Mindful Money’s platform (‘Mindful KiwiSaver Funds’) have outperformed the Morningstar average for each of the risk categories over the January-March 2020 Quarter. As would be expected, the outperformance is greater for the higher risk categories:

Within these results are some strong returns for specific funds. Some highlights are:

CareSaver: Outperformed the average by 4.9% across the three main risk categories.

John Berry, CEO: “At CareSaver we're an active and ethical fund manager. This is a huge advantage for our investors, particularly in times of market turmoil. Being active means we can manage our positions such as cash holdings, industries we don't want to invest in right now (for example hotels and airlines) and currency exposures. As an ethical investor, having no coal producers, oil companies or casinos has really helped returns. Also, as an ethical investor, we have focused on selecting quality companies - which is not just a strong balance sheet but importantly how companies manage environmental, social and governance risks.”

Booster – Outperformed Balanced Fund average by 2.9% and Growth Fund average by 2.7%.

David Beattie CIO: “Even before the markets reacted to the current COVID-19 crisis, our Responsible Investment portfolios had been outperforming standard portfolios, mainly due to the broad fossil fuels exclusion we implemented around four years ago. During this latest quarter, we have seen further significant falls in the price of oil and the share prices of companies involved directly in fossil fuel industries. Our active management strategies have also come into their own, as we expected during a market downturn, and our unlisted investments in the NZ horticulture space are significant strategic risk and return diversifiers.”

Simplicity – Outperformed the average in each of the three main risk categories.

Andrew Lance CIO: “Although negative returns are never good news, we are relieved the negative returns weren’t any larger. Our Vanguard managed ethically conscious funds were a significant factor in limiting our losses. Our international share fund outperformed an unscreened index by over 2.5% and our international bond fund was 0.3% ahead of an unscreened version. We also benefited from not holding Sky City due to our screen that removes gambling stocks.

Amanah: Growth fund return +5.4% vs average of -12.4%.

Brian Henry, Director: “The results are from pro-active management within the strict parameters of our Ethical Mandate which not only prohibits specific activities on ethical grounds but also requires the application of strict financial ratios to all of our investments. These financial ratios ensure all investments have very strong balance sheets that are capable of sustaining market shocks like the world is currently facing.”

Barry Coates: “These results show that investing in companies that are well-managed in terms of environment, social and governance issues also yields good financial returns. Most New Zealanders already know that companies with strong sustainability practices also have loyal customers, motivated staff and few environmental liabilities. We shouldn’t be surprised that these characteristics make them resilient in a downturn.”

“Mindful Money makes ethical investing simple. Anyone with a KiwiSaver account can see how ethical their KiwiSaver fund is by visiting Mindful Money’s website. They can see whether they are investing in companies that produce fossil fuels, make weapons, violate human rights or test products on animals. They can then compare across funds and use the fund finder to look at their options and switch to funds that match their investing criteria. Mindful Money’s website www.mindfulmoney.nz is free, quick and easy to use.”

Mindful Money will hold a Facebook Live event at 4pm on Thursday 9th April, enabling the public to learn more about investing ethically. This will be followed by a weekly series of live talks on zoom and Facebook, including interviews with financial experts, ethical fund providers including CareSaver, Booster and Simplicity, and international leaders in finance and sustainability.

Barry Coates concluded: “Now is the right time for investors to look at the performance of their KiwiSaver fund, financially and in terms of its impact on climate change, the environment and social issues. By investing ethically, they can feel good about their investment, do good in the world and earn good returns.”

Analysis of New Zealand Mindful Funds

The analysis of funds was undertaken by Mindful Money from data provided by 8 of the 10 KiwiSaver providers that manage the 26 Mindful Funds on the Mindful Money platform (data is not yet available from the other two providers). The average for KiwiSaver providers was sourced from Morningstar research. The attached comparison of a range of KiwiSaver funds draws on analysis of quarterly returns by CareSaver.

Analysis of international Responsible Investment funds

These results are consistent with international experience. Analysis by Bloomberg Business shows better performance from ethical funds during COVID-19 so far. Funds using Environment, Social and Governance (ESG) integration fell by less than half the average across all funds for 2020 to mid-March.

International research by financial market company, Morningstar, that showed ESG funds faring better than their conventional counterparts. Initial data from the first few weeks of the crisis has been confirmed in Morningstar’s analysis of the first quarter results. 24 of 26 environmental, social, and governance-tilted index funds outperformed their closest conventional counterparts.

The Financial Times notes that more than half of ethical investment funds have outperformed the wider global stock index in the market downturn. 62 per cent of global environmental, social and governance-focused large-cap equity funds outperformed the global tracker. A snapshot of ethical funds in the UK shows a similar result. And the world’s largest sovereign fund, Norges Bank has seen financial benefits from its exclusion of coal and dirty oil and gas producers during a period when oil prices have plummeted.

This experience of high returns for ethical investment during the COVID-19 crisis is reflected in broader research over a longer time period. Mindful Money’s responsible returns shows the evidence that returns from well-managed responsible investment are, on average, at least as high as conventional investing, and the risks generally lower. The research explodes the myth that there is a financial penalty for investing for good.

Mindful Money

Mindful Money is a charity that aims to make investment a force for good through public awareness and education, providing transparency and a comparator website, and undertaking policy analysis to support a framework for sustainable finance.

Mindful Money’s website allows members of the public to see what companies their KiwiSaver fund invests in, by issues of concern to most New Zealanders, including fossil fuels, gambling, human rights violations and products tested on animals. The service is quick, easy and free. The issues of concern were identified in a survey last year by Mindful Money and the Responsible Investment Association of Australasia, undertaken by Colmar Brunton.

The platform also allows users to find funds that align with their values and to easily switch to a more responsible fund. These funds use strategies of avoiding sectors/companies or managing Environment, Social and Governance (ESG) risk through portfolio selection and engagement. Currently 10 providers and 26 funds that have been verified as meeting the high ethical standards set by Mindful Money. Users on the website can set the criteria they are looking for and find the fund that fits. Mindful Money plans to add non-KiwiSaver Managed Funds to the website in May.

Sources: Mindful KiwiSaver Fund providers, CareSaver analysis for other KiwiSaver funds, Morningstar for average returns, Mindful Money analysis

© Scoop Media