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Why Alphinity is putting more ‘E’ into its new ESG fund


While some big funds are increasingly creating headlines through their exclusions of so-called ‘sin stocks’, such as tobacco or fossil-fuel producers, individual investors are demanding even more action, according to Stephane Andre, one of the principals of boutique equities manager Alphinity Investment Management.

He says ethical and even impact investing vehicles are being increasingly sought. Alphinity relaunched its ‘Sustainable Share Fund’ in January this year, taking the manager’s suite of funds to a new level of ESG investing. The strategy also recently won its first institutional mandate and was also recently awarded Fund Manager of the Year for Responsible Investments.

Alphinity was founded in 2010 by its four principals who had worked together at Alliance Bernstein. They joined the incubator Fidante, owned by Challenger Group, and in a relatively short time period are now limiting the available capacity for their two flagship funds – a core Aussie equities strategy and a concentrated Aussie equities strategy – which total about $8 billion in assets under management. The other three principals are Johan Carlberg, Bruce Smith and Andrew Martin.

  • The manager diversified in 2015 with the launch of a global strategy, which now has more than $1 billion, and has expanded the team managing that recently with the recruitment of Nikki Thomas as an additional portfolio manager. She was previously a portfolio manager and head of research at Magellan Financial Group.

    Alphinity is also looking to build on its wholesale (financial planner platforms) distribution to continue the growth of its Australian core and concentrated funds, which have “soft closed” to new large institutional clients.

    But it is the Sustainable Share Fund that Stephane Andre wants to talk about at the moment. The Fund has a Compliance Committee consisting of himself and fellow PM Bruce Smith as well as two specialist external ESG/Sustainability experts: Elaine Prior, the recently retired managing director of ESG at Citi Research; and Mark Lyster, co-founder and managing director of advisory firm Action Sustainability Asia Pacific. Johan Carlberg, as chief executive of Alphinity, and some external research providers may also join in the discussions. The full investment team includes the firm’s other portfolio managers, analysts and dealer.

    Alphinity believes strongly in active engagement with management across all its funds. Andre says engagement with companies is very important, including the continued active monitoring of companies which may have been excluded because of an ESG concern. Alphinity wants to know how all companies are addressing the United Nations’ Sustainable Development Goals (SDGs) and also how ESG engagement can fit in with certain investment themes, such as climate change or human rights.

    The UN’s SDGs consists of 17 goals, some of which, by their nature, need to be addressed by governments thematic and therefore not investable in themselves. However, Andre points out that they are all supported by investable activities which represent opportunities and challenges.

    The fund treads the fine line whereby exclusions have to be worth excluding. For instance, thermal coal and gold are both excluded but copper miners are not. This is because thermal coal is probably on the way out anyway and is a clear-cut polluter and gold does not provide sufficient benefit to society to make up for the environmental costs of mining it. Only a small percentage of gold is used for industrial purposes, the rest is for speculation or jewellery. “If you consider the environmental footprint of gold,” Andre says, “we feel that there is not enough of a Sustainable Development aspect to justify it. Copper, on the other hand, is needed for the distribution of electricity and for making electric motors, and has many more uses of sustainable value to society.”

    In the gambling area, Alphinity may own the poker machine manufacturer Aristocrat in its larger funds but will not in the Sustainable Share Fund because of its values approach. The fund is benchmarked to the ASX300 and will invest in 35-55 companies at any one time.

    The firm believes that the traditional approaches to sustainable investing need improving, through the use of positive, rather than only negative, screens and the support for the UN’s SDGs.

    It feels that the final hurdle to investing sustainably has been the lack of focus on a “positive” or “feel-good” theme, rather than offering good investment returns.

    The Sustainable Share Fund invests using Alphinity’s investment process, using a combination of fundamental research supported by select quantitative inputs that has produced strong and consistent returns over the long term. “We aim to invest in sustainable companies that do good for society and at the same time also provide strong returns for shareholders. We shouldn’t have to compromise one for the other” Andre says.

    – G.B.

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