In the Ethical Partners Operational Risk Assessment which is used for the Ethical Partners Australian Share Fund, we exclude companies that have significant operations in countries that are in the bottom third of the Transparency International Corruption Perceptions Index (TICPI). The Index is an independent tool which ranks 176 countries and territories by their perceived levels of corruption. Our reasoning for excluding companies in the bottom third of the TICPI are several. Firstly, we believe that there is a higher risk of human rights abuses taking place in these countries due to their higher levels of corruption. Additionally, there are lower levels of transparency and lower standards of governance. Secondly from an investment point of view, being a bottom up stock picker who visits company assets from time to time, it can be both dangerous and sometimes impossible to gain access to company operations in these countries. This makes the valuation of assets difficult and lowers confidence in an investment case. Thirdly we believe that generally, for those companies operating in such regions, there is a less stable political and regulatory environment, more chance of encountering issues such as nepotism, bribery, raised costs, the undermining of fair prices and competition and reputational risks, that ultimately leads to higher business risk. Ethical Partners clients can feel satisfied that they will not be supporting companies that operate in such areas and that we have taken steps to avoid these identifiable investment risks.
During September 2020 the Fund returned -3.40% versus the S&P/ASX 300 Accumulation Index of -3.60%, outperforming by 0.20% (after fees). Overweight positions in Insurance stocks and an underweight position in Construction stocks and Healthcare detracted from performance while overweight positions in Industrials (specifically Building Products) and underweight positions in Information Technology and Energy contributed to performance
Emma McCarthy recently joined Ethical Partners. Emma is a passionate final year law student and joins us as Sustainability and Advocacy Assistant. We are honoured to share with you her reflections on the recent UN Global Compact conference, and how it inspired her, as a new recruit to the global sustainability and human rights community, on her journey to fight for change.
During August 2020 the Fund returned 4.10% versus the S&P/ASX 300 Accumulation Index of 3.05%, outperforming by 1.05% (after fees). Overweight positions in Consumer Staples and Industrials added to performance while stocks in General Insurance and Building Products detracted from performance.
It appears that the Australian economy will be asked to grow itself out of debt post COVID rather than experience an increase in taxes once the economy is more stable. So what are the long term projects that would change Australia for the better? It was quite timely indeed then that the Australian Energy Market Operator (AEMO) recently released its 2020 Integrated System Plan (ISP). It appears to us that AEMO has put down the framework for how Australia will operate with less coal fired electricity generation given we have an aging fleet which will be gradually de-commissioned over the next 20 years.The AEMO Plan is a whole of system blueprint for the evolution and change the electricity market will experience in the 20 years to 2040. It expects 63% of the current coal fired power stations to close by then based on company disclosures and end of life assumptions. Herein lies Australia's great stimulus opportunity.