Hmmm.
Having been an active participant in equity markets for more than two-and-a-half decades, I've seen my fair share of investment figures being presented.
The information provided by the chart in the ABC report shows that the value of the Deloite Cleantech Australia Index (whatever that is) has risen from a base of 100 in December 2015, to around 170 or 175 today, so that's a 70% to 75% appreciation in value.
For starters, I have no idea what the composition of the Delloite Clean Tech Index is.
What sorts of companies are in there?
How concentrated is the portfolio?
What is the co-variance of risk across that portfolio?
How is the alpha attribution distributed?
Is it equally distributed across the constituent of the index, or have just a few shot the lights out?
Secondly, 3.5 years - in investment terms - is hardly a meaningful track record.
Speak to any self-respecting professional fund manager and he or she will tell you that the asset consultants who allocate superannuation money to active managers, look for a track record a lot longer than just 3.5 years.
Third, the choice of starting date is the oldest trick in the book, when it comes to flattering investment performance. Selecting the starting point just a few months earlier or later could tell a distinctly different story.
No matter, here is a comparison of some pure fossil fuel stocks, compared to that Clean Tech Australia Index:
View attachment 1750280
Next, moving onto the Canstar article, which cites a Responsible Investing Association of Australia(RIAA) report, which I took the liberty of perusing.
In this regard, there are some concerns that arise:
The RIAA report averages the performance of "between 8-14 funds, depending on the time period":
View attachment 1750061
Yet later in that report, the in the RIAA identifies 24 Australian managers that "apply a leading approach to ESG integration":
View attachment 1750058
I spent a few minutes going through some of the managers on that list of 24, especially the ones with which I am at least vaguely familiar.
My findings are that the returns of some of the funds in that list of 24 actually lag - badly, in some cases - the average achieved returns listed in the table above headed "How Do Ethical Funds Compare to Australian Share Funds?".
See below:
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One fund, Solaris, generated returns on par with the benchmark (+0.34% pa of 10 years), but I notice that they hold shares in companies that I wouldn't exactly call environmentally friendly, namely Aurizon (coal transporter), BHP (petroleum, gas and coal) and Worley Parsons (engineering contractor that specialises in the design and and construction of infrastructure for the fossil fuel industry globally):
View attachment 1750190
And one fund in the RIAA list of asset managers that "apply a leading approach to ESG integration" was forced to, in fact, close up shop earlier this year because its performance was so poor and it lost so many mandates (from the following AFR article:
https://www.copyright link/street-t...-down-return-funds-to-clients-20190326-h1ctmj:
View attachment 1750178
So, it strikes me as a bit curious that RIAA report includes a relatively small number of managers (8 to 14, depending on the "time period") to derive average investment performance, out of the total list of 24 managers which they list with approval.
And yet, a cursory flick through that list throws up several that have under-performed the benchmark (and one that has folded due to poor performance).
It strikes me that there has been somewhat more than just a bit of cherry-picking in coming to the conclusion of out-performance of ethical funds.
[*] And I notice that not all funds that invest within an ESG framework have been included in the RIAA sample of 24 companies...I know of at least two other funds off the top of my head - Celeste Funds Management and Spheria - who are both signatories to the UNPRI that have not been included in the listing of 24 managers.)
Neither the returns of Spheria nor Celeste have been that flash:
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And another thing, although the selected "8 to 14" group outperformed, it was by less than 2% pa which, if you understand anything about portfolio theory, is hardly sufficient alpha to justify the tracking errors (ie. the systematic risk) inherent in portfolios of stocks that are not index weighted.
For example, most high-conviction fund managers would have investment objectives of
5% above benchmark in order to compensate investors for the elevated level of risk within non-index tracking portfolios.
Example:
View attachment 1750241
So, 2% out-performance is not at all that special when it comes to assessing risk-adjusted returns from investment portfolios compared to relevant benchmarks.
(In fact, 2% outperformance would fall some way short of generally accepted investment objectives in order to compensate for portfolio tracking error rates)
By way of demonstration, here is a manager (non-ESG focused, I believe) who delivers 10%pa outperformance for its clients:
View attachment 1750250
2% alpha is really nothing.
Heck, judging by their investment insights,
I can tell you that many of the individuals I have come across on this forum will be generating investment returns a lot higher than a mere 2% above the broader market!
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(20min delay)