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 February 2022 the Fund returned 1.87% versus the S&P/ASX 300 Accumulation Index of 2.09%, underperforming the market by 0.21%. Over the past 12 months the Fund has returned 14.7%, outperforming its benchmark by 4.45% (after fees).