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Alcohol fuels ethical debate

ETHICAL investors who have steered clear of wine and beer companies would be crying into their carrot juice, judging by the results of a new study.

But if they steered clear of gaming companies, they would be smiling all the way to their community bank.

The study by the University of Melbourne’s Centre for Corporate Law and Securities Regulation has focused on one of the fastest growing segments in the managed funds industry.

The centre said ethical investment funds totalled $1.9 billion, with a number of high profile superannuation funds now offering ethical investment options.

The amount invested in ethical funds grew by 29 per cent in the nine months to March 31, according to industry analyst Corporate Monitor.

The largest ethical fund managers are Hunter Hall, Glebe Asset Management, the merged Westpac / Rothschild fund management business and Australian Ethical Investment.

The new study sought to establish whether ethical – or socially responsible - investment carried any financial sacrifice.

It studied the returns from Australian shares over the seven years to December 2001, with adjustments for companies that operate in the so-called ‘sinful industries’.

This reflects the common ethical investment policy of screening out companies in industries such as armaments, nuclear power and tobacco.

In the Australian context, the most suitable data available relates to the ASX’s alcohol and tobacco, and tourism and leisure sub-indices.

The Alcohol and Tobacco Index comprises wine makers and brewing companies, notably Foster’s Group, Southcorp, Lion Nathan and BRL Hardy. It no longer includes tobacco companies, with British American Tobacco being removed from the index in May 2001.

This Index made a strong and consistent performance contribution, outperforming the broad market by 9.8 per cent per annum.

The Tourism and Leisure Index includes Australia’s largest casinos and wagering organisations, including Tabcorp, TAB, Jupiters, Burswood and gaming machine manufacturer Aristocrat Leisure.

This Index under-performed the broad market by 3.1 per cent a year.

On average, over the seven-year analysis period, investors avoiding shares in the ‘sinful’ industries sacrificed returns of approximately 0.7 per cent per annum (ie 12.0 per cent versus the broad market return of 12.7 per cent).

Ethical funds that avoid some industry sectors will necessarily be overweight in other sectors.

This can adversely affect short-term returns, as Australian Ethical Invest-ments has found.

Australian Ethical avoids all mining companies and big banks and has a high exposure to environmental technology and healthcare stocks (eg Cochlear, CSL and Resmed).

A sharp dive in healthcare stocks has resulted in Australian Ethical’s two equities funds posting negative returns over the past year.

This represents a sharp turnaround for Australian Ethical, which has been one of Australia’s best performing fund managers over the past few years.

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