Brisbane based financial planning group Ethical Investment Advisers has rolled out a new Separately Managed Account (SMA) that is perfect for ethical investors looking to divest from fossil fuels and invest in sustainable investments.

The Ethical Investment Advisers Mid-Cap SMA has huge potential to raise the benchmark of financial investment in the country through positive screening and analysis that will help investors make a competitive return without compromising their ethical values.

In particular, the SMA will avoid fossil fuel investments (oil, gas, coal, and coal seam gas), tobacco, uranium mining, and weapons, and will focus on companies which are providing positive solutions to global issues like aged care, sustainable property, healthcare, renewable energy, medical technologies, education, and information technology.

According to Ethical Investment Advisers’ Director Louise Edkins, “The model portfolio is an exciting product that offers social and environmental values with financial benefits. The mix provides a combination of smaller and medium sized Australian listed companies providing competitive financial returns without compromising their client values.”

The objective of the Ethical Investment Advisers Mid-Cap Separately Managed Account is to outperform the S&P/ASX Mid-Cap 50 over the long term, while providing investors with access to small and mid- cap stocks which meet environmental and socially responsible standards.

INVESTORS PREPARED TO SWITCH IF CONCERNS IGNORED

Advisers should be aware that quarter of superannuation members are prepared to switch super funds if they find their current one was invested in coal seam gas, based on concerns about environmental impact (Market Forces survey compiled by The Australia Institute, 2013).

The Australia Institute also found that a greater proportion of respondents believed that in order for a superannuation company to make investments that were ‘in their long term interests’, funds should consider ethical and environmental implications (40 per cent) rather than simply maximising financial returns (36 per cent).

Fortunately, advisers can now offer the SMA as a product solution for clients that are concerned with environmental and ethical issues. The SMA is ideal for investors who want to access to small and mid-cap stocks which meet their ethical requirements and a mix of long term opportunities and income.

For more information regarding the Ethical Investment Advisers Mid-Cap Model Portfolio, contact us today, or read more about the Model Portfolio.

ABOUT ETHICAL INVESTMENT ADVISERS

Ethical Investment Advisers provides investment solutions which meet clients’ values, whilst still receiving a solid return. By integrating the social, environmental and financial aspects of an investment, they believe that a more sustainable investment return is possible.

Ethical Investment Advisers has an Australian Financial Services Licence (276544). The SMA Managers have experience in portfolio creation and management, and vast experience in stock selection, having managed ethical investment portfolios for over 10 years. The managers provide advice on over 75 Self-Managed Super Funds and hundreds of other superannuation and investment portfolios, with a large portion of funds invested in a managed portfolio of Australian shares. They are actively involved with the Responsible Investment Association Australasia (RIAA).

MEDIA CONTACT:

Karen McLeod, Ethical Investment Advisers
Phone: 07) 3333 2187
Website: www.ethicalinvestment.com.au
Email: kmcleod@ethicalinvestment.com.au
Post: PO Box 824 BULIMBA QLD 4171

The contents of this press release are intended as general advice only. No specific person’s circumstances, financial situation or objectives have been taken into consideration. You should not act on the information provided without seeking personal advice from an appropriately qualified financial planner. While the sources of information have been verified as reliable, the actual content has not been checked for accuracy. Consequently Ethical Investment Advisers does not warrant the accuracy of the information nor accept liability for any errors. Past performance is no indication of future performance.

Although similar to a managed fund, in that your investments are being managed by investment professionals, Separately Managed Accounts (SMA) are far more flexible and transparent.

Instead of buying units in a managed fund or trust, when you purchase an SMA you are actually purchasing each individual investment. This gives you more transparency over the assets you own, as well as more control over capital gains tax and switching investments. You are the beneficial owner of the underlying securities and that means you receive the dividends and franking credits from the underlying shares.

How is an SMA different to a managed fund?

An SMA is different to a managed fund, in that it allows you to:

• view the underlying Australian shares of a portfolio;

• save up to 20% in management costs than a comparable managed fund;

• minimise brokerage costs compared with a normal share portfolio;

• avoid ‘inheriting’ capital gains when investment managers sell assets before you invest to fund other investor redemptions; and

• minimise tax when you transfer shares between SMA models

Transparency

Unlike managed funds, which generally do not allow you to see what underlying investments you own, when you invest in SMAs via a platform you will have a ‘single view’ of your Australian share holdings via your statement or your online account.

Customisation

All Australian shares will be selected and managed within the model portfolio by the investment managers. If for some reason you wanted to sell one of the shares in the model portfolio and replace it with another Australian share, you can easily make a change, while still having the portfolio managed by a professional team. This is an excellent tool which is unavailable in an ordinary managed fund.

Avoid ‘inheriting’ capital gains when investment managers sell assets

Typically when assets within the managed fund are sold by the investment manager the capital gain is distributed to all investors in that fund at the end of the tax year and tax is payable on their share of the profits.

A key benefit of an SMA investment is that investors are not invested in ‘common’ units, but rather the underlying shares are recognised as held for your account. This means if assets are sold you will pay tax on your share of the profits from the date you joined the model, not from the date the model started, nor for realisations for other investors. This means you will not ‘inherit’ capital gains from previous events, or other investors’ actions.

Stranded assets could devalue your superannuation

If you are concerned about climate change, you would have heard Bill McKibben speak about the concept of unburnable carbon and divestment. This idea is really gathering momentum. Investment bank HSBC says in their recent report that Australia’s biggest mining groups could see the market value of their coal assets cut by nearly half – or more than $US20 billion. If that happens, it going to hurt these listed miners and their investors.

If you have investments in fossil fuels, divesting could make good financial sense. As the world moves to energy sources which have a smaller carbon footprint, the companies that extract fossil fuels may face large devaluations.

This represents a significant risk to your investments and your superannuation. A powerful way you can help the planet and help to protect your investments is by directing your money away from fossil fuels and towards positive investments. When you consider that for most Australians our biggest asset aside from our own home is our superannuation. You know that we are dealing with an important sum of money.

Using your money to support a better planet is not a new idea. Personally, I have been advising in this area for the last 7 years. Over that time, I have met lots of investors that want to support investments which make for a better planet and avoid those that are doing it harm. They also want to make money along the way. Investing ethically is not a charity.
Take Action!

So, how can you take action? I’m going to outline three different responses you can take. Firstly, stay where you are and engage. Secondly, make some changes. Thirdly, divest from fossil fuels. Let’s go through them.

1. Stay where you are and engage

Keep urging your super fund, your fund managers or your financial adviser to phase out fossil fuel exposure in your portfolio. Presently, Australians hold nearly $1 trillion dollars just in institutional superannuation funds. But hardly any Australians pay close attention to how their super fund is voting at shareholder meetings on their behalf. If you want to engage, here are some practical things you can do:

Write a letter expressing your concern to the Chair of the board or the Trustees of your super fund.

Call and ask for more information about their exposure to fossil fuels.

If your superannuation contributions go to an employer super fund like Unisuper or QSuper , try gathering signatures from your work colleagues. Write as a group to your employer to obtain an investment option that is fossil-fuel free.

Vote at annual meetings.

If you have a financial planner, you should call them and ask them to engage with the fossil fuel companies on your behalf. We do this for our clients.

What about nominating a candidate for the Board? For example, we supported the nomination by Ian Dunlop to fill a vacancy on the Board of BHP Billiton.

Make some changes

Reduce your exposure to fossil fuel companies. Make some partial sales.

Selectively divest those companies that have the highest levels of carbon reserves.

Retain only the companies that are demonstrating the greatest progress in reducing their exposure to fossil fuels or their carbon footprint.

Move to a more ethical / responsible investment option.

Does your super fund have an ethical / responsible investment option? Is it fossil fuel free? Unfortunately, many have investments in the companies you want to avoid – like Wesfarmers (which has coal mines), Woodside and BHP Billiton, for example. If you can choose a new super fund, then you need to consider what your responsible investment fund is actually investing in.

Read the Product Disclosure Statement put out by the super fund or investment fund, it will explain their investment methodology. You can find information about responsible investment funds on the RIAA website. Check the RIAA website. www.responsibleinvestment.org to see which members are certified by RIAA and read their investment methodology online. This might help as a starting point. But it is worth remembering that responsible investments are not all the same.

Being on the certification board for RIAA I can tell you that the investments we review do vary greatly in their investment mandates. Many of these funds do contain fossil fuels because this movement is relatively new. It’s difficult to research because it is a new industry and there is not alot of information out there. At Ethical Investment Advisers we can do it because it’s our specialisation and we have invested heavily in this area.

Divest from fossil fuels

If you are ready to divest from fossil fuels you will need to contact your super fund, fund manager or financial adviser. Before making this request you should make sure you are aware of any implications. When re-investing it makes sense that you ensure your new investments are fossil-fuel free. You may like some professional help.

So just to reflect, you do have options with your money. You can engage with companies, super funds, and financial advisers. You can divest from fossil fuels either fully or partially. Re-investing in sectors which are positioned for the future makes environmental and economic sense.

Author: Karen McLeod, Ethical Investment Advisers AFSL 276544.

DISCLAIMER: The contents of this article are intended as general advice only. No specific person’s circumstances, financial situation or objectives have been taken into consideration. You should not act on the information provided without seeking personal advice from an appropriately qualified financial planner. While the source has been verified as reliable, the actual content has not been checked for accuracy. Consequently Ethical Investment Advisers does not warrant the accuracy of the information nor accept liability for any errors in the data.

Why choose an ethical SMSF?

Do it your way !

Wanting to invest your superannuation your way? Love to have your retirement assets reflect your ethical values? The good news is that you can grow your retirement funds in a more meaningful way in areas that interest you.

Superannuation does not need to be invested with big multinational fund management companies or in industry super funds with standard choice offers. Investing in a Self Managed Superannuation Fund with specialist advice by an ethical investment adviser can create a financially rewarding and socially and environmentally positive retirement base.

Firstly a Self Managed Superannuation Fund (SMSF) requires a reasonable account balance to justify the establishment costs and trustee obligations. Generally a minimum of $200,000 with regular contributions would be needed.

In an SMSF you can combine your unique combination of the following:

Shares
Property investments
Bonds
Hybrid fixed interest securities
Managed Funds
Cash Accounts
Term Deposits
Seperately Managed Accounts (SMA)

So what are the investment choices?

Ethical property investment options

A SMSF is the only superannuation vehicle that can purchase properties directly for your purposes and interests. Purchasing environmentally positive homes provides a tangible investment choice with environmental benefits. The annual rental income and growth adds value to your superannuation fund value.

Ethical investment share choices

Having a SMSF means that an investor can buy shares that they personally have an interest in and support businesses that reflect their ethical concerns and values.

The standard superannuation investor will have the share component of their superannuation fund invested predominately in the largest 50 Australian share companies in a similar ratio to the size of those companies. Therefore companies such as BHP Santos, Woodside Petroleum and Rio Tinto with significant Coal, Petroleum and Uranium interests would all be predominant shareholdings in a standard superannuation fund.

There are many international and Australian companies that display very positive corporate citizenship. Companies that look after the community, their staff and the environment have strong brand loyalty and staff retention.

Although, for the individual investor, it can be difficult to find out about these businesses in the sea of “greenwash”. An ethical investment adviser would source information from a range of research experts, not only financial analysis but also social, environmental and governance research on companies.

Historically companies with good ethics tend to have strong consumer loyalty and staff retention. Ethical companies that look beyond the financial bottom line are generally forward thinking businesses that are reducing their financial risks by assessing the environmental and social costs of their businesses.

Other investment choices for the ethical investor

There are bonds that provide capital risk management and security at a reasonable income return. These can be issued by companies with positive ethics including some banks as well as governments.

Hybrid fixed interest/shares opportunities can provide attractive after tax income with growth prospects within companies that suit an investors risk and ethics profile.

The advantage of a SMSF is that you can invest your retirement savings your way and an ethical investment specialist can ensure that your risk and values are reflected within the choices recommended and you know where you money is invested and what it is doing.

A standard superannuation fund product is quite intangible and the underlying investments an unknown to most investors. Ethical investment within a SMSF is quite empowering for clients as well as financial rewarding.

Pensions

SMSF’s can be easily converted into pensions and in the right circumstances can be paying tax free income streams. SMSF’s are very flexible and there are several types of pensions that can be set up. These include Transition to Retirement (TTR) Pensions, where you are bale to take a pension prior to retirement.

Employer contributions

In most circumstances SMSF’s are able to take employer contributions and you can roll over most other supers into an SMSF.

Trustee responsibility

Having a SMSF has its downside, as Trustees you would be responsible for the investments and ensuring that the super is run according to the various rules and regulations set out by the Australian Tax Office (ATO).

However you can enlist the services of your adviser or accountant to assist with the set up of the fund and the day to day running of the super.

Why should I have a Self Managed Super?

You should consider a self managed super if:

You want a more ‘hands on’ approach.
You want control over the assets that are bought and sold.
You want to be selective about the investments you will have in your super fund.
You are not happy with the ethics and/or performance of your current superannuation fund.
You want to buy an asset like a residential property that cannot be bought through a standard super fund.

Costs

There can be up-front costs of setting up the SMSF, including the establishment of the Trust Deed and registering for an ABN with the ATO.

The cost of running a self managed superannuation is generally around the same cost as a public offer fund, but slightly more than an industry fund with an ethical overlay. Of course this depends on how much money you have in superannuation. As your superannuation grows, the more affordable a SMSF becomes. Ask your adviser for full details of costs.