‘No one’s perfect – we’ll still buy stocks hit by a scandal’

It’s an investment cliché that you can be ethical with your money or you can get returns, but not both. Liontrust UK Ethical has proved otherwise. Since launch in 1999, it’s returned 304pc, far higher than the FTSE All Share’s 170pc. The £506m fund has been with Liontrust since 2017, having transferred from Alliance Trust Investments. Peter Michaelis manages the portfolio alongside Neil Brown and his team also run the firm’s “sustainable future” range.

He told Telegraph Money why he is buying more British companies ahead of Brexit and what makes him different from Neil Woodford.

HOW DO YOU CHOOSE STOCKS?

We follow a detailed process which has been refined. We start off by looking for companies benefiting from changes in society, like the move towards a low-carbon economy, digital security or companies involved in healthier eating.

Then we look at how well managed those companies are, apply ethical principles to them and decide how sustainable their growth is before investing in the best ones.

WHAT MAKES YOU DIFFERENT FROM YOUR RIVALS?

We’re not just buying environmental technology stocks or healthcare companies.

We look for businesses that are benefiting from changes in the whole economy.

Our team has a lot of experience and the fund has been going since 1999. Over the past 20 years we’ve learned how to improve the way we select stocks.

IS ETHICAL INVESTING BECOMING MAINSTREAM?

When I started it was deemed to be something very, very niche and the expectation was you wouldn’t make the best returns. I think this fund, and many others, have shown that actually you can make very strong returns by investing in this way.

I have only ever managed sustainable and ethical funds and wouldn’t want to invest in others.

Peter Michaelis, the manager of Liontrust’s UK Ethical fund, tells Sam Meadows his predictions for the outcome of Brexit

HOW CAN SCANDAL-HIT FIRMS BE ‘ETHICAL’?

No company is perfect. Prudential [recently found guilty of mis-selling annuities] has had some bad press but it still provides insurance and savings products in south-east Asia. We take insurance for granted, but if you haven’t been able to insure your property or your life then doing so is a huge benefit.

Companies like GlaxoSmithKline, which we own in other funds, is developing vaccines and fighting HIV. It got caught in a scandal too but has improved massively since then. I don’t own it in this fund, as we ignore companies that use animal testing.

HOW DOES BREXIT AFFECT YOUR THINKING?

Brexit is a difficult thing to plan for. It’s like a tree diagram and it could still go down any number of branches. That said, the companies we own should do well in almost any scenario.

We aren’t shying away from domestic stocks at all and see some value. We own the mortgage company Paragon, Rightmove, DFS and Gym Group. The share prices for these companies is lower than it

should be because people don’t want to take a Brexit risk. I wouldn’t want anyone to think returns are predicated on a particular Brexit outcome – it’s not – but we made additions to British housebuilders.

WHAT DOES THE WOODFORD SAGA TEACH FUND MANAGERS?

I just think what’s very important with us is it’s a team approach. We have always prided ourselves on the fact that it’s not about one individual.

£1,000 invested at launch would be worth £4,040 today

BEST INVESTMENT?

We think the shift to a low-carbon economy will happen more rapidly than the market expects which will benefit Kingspan, which makes thermal insulation for buildings.

It has been incredibly successful and made strong returns, with good growth, while providing reductions in carbon. We have held it for nearly 20 years. Five years ago the share price was €13 (£11.20), now it’s €48.

AND THE WORST?

Goals Soccer, which owns five-a-side football pitches. It was planning to build centres around the country and it worked well for a few years but then returns started falling and there was more competition.

The share price fell and we sold too late: around 80p a share. It had traded as high as £2.

HOW ARE YOU PAID AND DO YOU INVEST?

I get a base salary and the rest is based on the how much revenue the funds make. My pension is invested in my range of funds.

WHAT WOULD YOU HAVE BEEN IF NOT A FUND MANAGER?

I’m still waiting for a call up to be an astronaut – hopefully they will take a veteran. I nearly stayed in academia; I did a PhD in environmental economics which fits with the territory.