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Alphinity Investment Management Limited

PRI reporting framework 2020

You are in Direct - Listed Equity Incorporation » Outputs and outcomes

Outputs and outcomes

LEI 12. How ESG incorporation has influenced portfolio composition

12.1. Indicate how your ESG incorporation strategies have influenced the composition of your portfolio(s) or investment universe.

Describe any reduction in your starting investment universe or other effects.

In the Sustainable Share portfolio, industry screens take out around 15% of the universe, including almost all of the Consumer Staples sector for reasons of exposure to gambling and alcohol. This can have a negative impact on performance in falling markets, when the defensive nature of Staples tend to be more appealing. While from period to period this can make a big impact, over almnost seven years running the fund it has only had a modest impact on performance relative to the comparable unconstrained fund. 

The other bias is towards smaller companies. As a number of large companies are screened out, by definition this pushes the fund towards smaller cap exposures for replacements. This can have a positive or a negative impact depending on the market environment

 

Specify the percentage reduction (+/- 5%)

15 %

Describe any alteration to your investment universe or other effects.

We have adopted the UN SDGs as one of our positive screens for the fund, seeking companies that contribute to the achievement of those goals. Research on the SDGs is still developing but the groups of companies that tend to come up most positively are in the Real Estate and Health Care industries. Strict application of a screen such as this would arrive at an interesting portfolio but not necessarily a balanced one

Select which of these effects followed your ESG integration.

12.2. Additional information.[Optional]

The main bias introduced by fund screening is in some sectors, as described above, and towards small-cap companies. This is because many of the companies excluded by the screens are quite large-cap, we need to go further down the capitalisation list to fill those spaces. This can have perfromance implications over time as small cap stocks have their own return characteristics depending on the stage of the market cycle


LEI 13. Examples of ESG issues that affected your investment view / performance

13.1. Provide examples of ESG factors that affected your investment view and/or performance during the reporting year.

ESG factor and explanation

Social: gambling stocks are screened out of Sustainable Share Fund

Aristocrat Leisure is a technology company that primarily operates in the gambling space, unaccesptable to the Fund and therefore screened out. 

ESG incorporation strategy applied Screening

Impact on investment decision or performance

Not owning Aristocrat between 2014 and 2018 caused the Fund to miss out on considerable passive performance and active opportunity cost compared to the un-screened fund which owned Aristocrat over that period. Not owning Aristocrat helped performance a little in 2019

ESG factor and explanation

Social: encouraging fresh food

We had the opportunity to support the IPO of Costa, a company wholly involved in growing berries, citrus and mushrooms. It practices sustainable agricultural practices through water conservation and the minimal use of chemicals, and supplies major Australian supermarkets and fruit sellers as well as China and Europe through its farms in China and Morocco. 

ESG incorporation strategy applied Thematic|Integration

Impact on investment decision or performance

Costa was a strong contributor to Fund performance over its holding period

ESG factor and explanation

Governance: avoiding investment in Harvey Norman for governance reasons, this is a company controlled by its founder without regard for minority shareholders. It has some opaque accounting practices and been prone to making meaningful investments in tangential areas to its core business, which is what minorities are presumably owning the shares for. Screened for poor corporate governance even in funds for which screening is not in place. There are a number of other companies for which this is also the case. 

ESG incorporation strategy applied Screening

Impact on investment decision or performance

Largely positive - it has been a consistent underperformer largely for governance reasons, so not being exposed has been modestly positive for returns

ESG factor and explanation

Recycling and waste management: our investments in Bingo Industries and Cleanaway have been mixed experiences. Bingo specialises in collecting waste from industrial and construction sources, sorting and recycling as much as possible, resulting in >75% diversion from landfill. Cleanaway has more residential waste and also treats toxic waste. Both contribute significant positive benefit to society

ESG incorporation strategy applied Thematic|Integration

Impact on investment decision or performance

Cleanaway was a positive contribution to performance; Bingo has also been positive althgough has been very volatile

13.2. Additional information.[Optional]


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