Trojan Ethical Income I Acc (OEIC/Unit Trust)
SRI / Ethical Overview
The investment objective of the Trojan Ethical Income Fund is to provide income with the potential for capital growth in the medium term. The Trojan Ethical Income Fund is a UK equity income fund, managed with the same investment philosophy and approach as the Trojan Income Fund, however the Fund will invest in accordance with the parameters of its ethical investment criteria, which consider ethical issues in relation to fossil fuels, pornography, tobacco and certain types of armaments. We have also proposed extending the ethical criteria, which would restrict investments related to alcohol, high interest rate lending and gambling. The Fund delivered a yield of 3.3% in its first year.
SRI / themed / ethical assets under management – overview
- Fund Size (GBP): £57 m
- Total value of SRI/ethical/environmental/ social/ environmental or sustainability themed funds under management: £57 m
- Total value of assets covered by responsible ownership policy: £9,472m
- Total assets under management: £9,472m
(All data as at 31st March 2017, unless stated otherwise)
SRI Policies (Primary strategy in bold)
- Ethical policies Find funds with 'traditional' ethical investment policies. These typically focus on avoiding companies that are involved in the armaments industry, tobacco, gambling and/or pornography. Options will include funds where their core strategy or style may be to focus other issues - like sustainability or the environment, not just 'ethical funds'. Strategies vary significantly. Check fund literature for details.
- Tobacco production avoided Find fund options that exclude manufacturers of tobacco (or related) products. This typically relates to ethical funds however funds from other SRI Styles commonly avoid this area also. Strategies vary and funds may invest in retailers of such products (e.g. supermarkets or hotels.) See fund information for further information.
- Armaments manufacturers avoided Find ethical fund (and other SRI) options that avoid avoids companies that manufacture products intended specifically for military use. Fund strategies vary - particularly with regard to non strategic military products. Read fund literature for specific details.
- Coal, oil &/or gas majors excluded Find sustainable investment and ethical fund options that avoid significant involvement in coal, oil and/or gas producing companies. Funds vary. See individual fund literature to confirm details.
- Fracking and tar sands excluded Find fund options that avoid companies involved in fracking and tar sands - which are widely regarded as more controversial methods of oil and gas extraction.
- Pornography avoidance policy Find ethical fund option - and in some cases other options - that avoid companies that derive significant income from pornography. See fund details for further information.
- Negative selection bias Find funds where their main 'ethical approach' is to avoid companies by using negative screening criteria. Read fund literature for further information.
- Over 50% large cap Find funds that invests more than half of their money into what are commonly regarded as 'large companies'. This will typically mean that the market capitalisation (or value) of the companies they hold is in excess of £5 to £10 billion.
- Strictly screened ethical fund Find funds that have a high level of negative ethical avoidance. These funds are likely to exclude more companies than other ethical (and SRI) fund options. Read fund literature for further information.
- Limited/few ethical exclusions* Funds with this label tend to avoid fewer companies than other ethical funds or other options with avoidance criteria. Strategies vary. The fund may only avoid companies in one or two areas (eg only exclude tobacco or armaments companies) or they may exclude only the very worst companies when measured against internationally accepted standards (across potentially a range of areas). Read fund literature for further information.
- Available via an ISA Find funds that are available via a tax efficient ISA product wrapper
- ESG/SRI engagement Find funds and fund management companies that actively encourages higher 'environmental, social and governance' and/or 'sustainable and responsible investment' practices amongst investee companies - when positive change is aligned with the best interest of investors. This may apply to a single fund or a group of funds. Read fund literature for further information.
- Vote all* shares at AGMs/EGMs This fund manager votes or aims to vote all* the shares they own at Annual General Meetings and Extraordinary General Meetings. A commitment to voting shares is a key indicator of 'responsible share ownership' - where fund managers consider - and express their views on - the key business issues effecting the companies they part own. (*Allowance is made for exceptional situations such as when shares are in the process of being sold.)
- In house responsible ownership/voting expertise Find fund / fund management companies where there is in-house expertise that enables the fund manager to make their own decisions on issues such as shareholder voting, setting of in-house guidelines - for example - particularly with regard to environmental, social and governance (ESG) issues.
- PRI signatory Find fund management companies that have signed up to the UN backed 'Principles of Responsible Investment' initiative.
- Boutique/specialist fund manager Find options offered by smaller, more specialist fund management companies with a significant (or entire) emphasis on sustainable, responsible, ethical, ESG or responsible ownership related investment strategies. Note - strategies vary significantly. Check fund manager supplied links for further information.
SRI / Ethical Policy
The present ethical investment criteria mean that the Sub-fund will not invest in any organisation which:
Armaments - (a) generates more than 10% of its total turnover from strategic military supplies relating to conventional weapons and/or (b) produces key parts of, or provides services for, cluster munitions systems, and/or (c) is alleged to have contravened the convention on anti-personnel mines in the last ten years and which has not addressed the allegations, and/or (d) manufactures products, or provides services, which are all or part of a nuclear weapons system.
Tobacco - makes more than 10% of its total turnover from tobacco products.
Pornography - derives more than 3% of its total turnover from pornography or adult entertainment.
Fossil Fuels - (a) derives more than 33% of its total turnover from the refining or extraction of, or generation of power from, fossil fuels and/or (b) derives more than 10% of its turnover from coal mining activities. Companies whose listing falls within the Oil & Gas sector are also excluded.
The following further exclusions are currently pending approval from the FCA:
Alcohol - derives more than 10% of its total turnover from the sale or production of alcohol.
Gambling - derives more than 10% of its total turnover from gambling (including spread betting).
High Interest Rate Lending - derives more than 25% of its total turnover from high interest rate lending (high interest being defined as lending at an annual percentage rate (APR) of over 100%).
Resources, Affiliations & Corporate Strategies
Hugo Ure manages the Trojan Ethical Income Fund.
Hugo graduated from Oxford University in 1999 and joined Kleinwort Benson in 2004 where he focused on equity analysis until his move to Troy in January 2009. As well as being the primary manager of the Trojan Ethical Income Fund, Hugo has primary responsibility for a £76m segregated account for a charity. He is co-manager of Troy Income & Growth Trust plc and assistant manager of the Trojan Income Fund. Hugo is a CFA charterholder.
We try to keep the investment process as simple and intuitive as possible. We only invest in those companies that we feel we thoroughly understand and that we believe have enduring qualities that will allow an investment to compound in value over the long term. We aim to own and not trade investments, so we have to be confident in the ability of a business to deliver growing cash flows into the future.
Troy has a rigorous focus on quality. We invest in businesses with high returns on invested capital which we consider to be sustained by durable competitive advantages. We favour stable and growing companies with a strongly differentiated product or service that new or existing rivals struggle to copy. These are companies with low risk to their earnings that permit sustained high levels of profitability. We also pay particular attention to how management allocates capital and typically avoid highly acquisitive and indebted companies.
Having identified companies that meet our quality criteria, we consider making an investment only when, in our view, three further conditions are met: first, their balance sheets are soundly financed so that management can allocate capital flexibly; second, they are managed by people that act in the best interests of shareholders; and lastly, when their shares are quoted at a price that underestimates future cash flows. We believe this combination of owning high quality companies, purchased at reasonable prices gives us the defensive characteristics we seek.
The first part of the research process is populating and maintaining Troy’s investment universe of approximately 200 stocks that meet our quality criteria. All members of the investment team, including the fund managers, have responsibility for idea generation and research. We do not allocate stock, sector or geographic responsibilities to particular analysts as we consider it to be important that all members of the team are able to compare the merits of a wide spectrum of investments. This ensures pooled responsibility for our investments and healthy internal discussion.
The Trojan Ethical Income Fund’s investment universe excludes approximately 10% of companies from Troy’s overall investment universe of 200 stocks on the basis of its ethical investment criteria.
Troy’s fundamental investment process is supported by VigeoEiris, a leading provider of ESG research, who underpin the ethical screening process and provide additional input on environmental, social and governance issues.
The Investment Manager employs Ethical Investment Research Services (EIRIS) Limited (“EIRIS”) to provide an ethical screening service and research in respect of the Sub-fund. The Investment Manager shall, for a fee agreed between the Investment Manager and EIRIS, which the Investment Manager shall bear, obtain data and research from EIRIS involving monitoring the behaviour and activities of businesses according to the Sub-fund’s ethical investment criteria. The Investment Manager will use the data and research provided by EIRIS as an element of the investment process.
Where an investment is identified as no longer meeting the Sub-fund’s ethical investment criteria, the Investment Manager will seek to sell the investment within the following 90 days. The prices at which such an investment can be sold in these circumstances may be lower than the prices that might otherwise have been realised for the investment if such a sale was not required.
Investors should note that this document sets out the Sub-fund’s ethical investment criteria as they currently stand. However, the Investment Manager hopes that investors and prospective investors will understand that the process of investing on a socially responsible basis is constantly evolving. Therefore, the Investment Manager’s approach, and that of EIRIS, may change which, in turn, may mean that the Sub-fund’s ethical investment criteria may be amended from time to time.