Bryn filters out the unethical to give investors the feelgood factor
ETHICALLY-minded investors still want to make a profit from their principles, including those looking for income. Standard savings accounts do not cut the mustard – on average, they pay just 0.35 per cent. But those who are happy with some risk can boost that more than tenfold by opting for a high-grade bond fund and feel good about where their money is being used.
Bryn Jones gets that feeling from many of the bonds he selects. He has run the Rathbone Ethical Bond fund, which today pays an annual distribution of 4 per cent, since 2004.
He does not just examine would-be investments through green-tinted glasses. He also makes use of Rathbone’s large equity investment team’s knowledge – ‘I gatecrash their meetings’ – to shine a sharp beam on a borrowing organisation’s investment credentials.
He says: ‘We give them an investment screen first and then an ethical and social screen. Companies behind the bonds must be solid with a strong balance sheet and a capacity to pay back their loans.’
Once the investment strengths are determined, the first element of the green screen is to jettison firms with links to ethical no-nos, for example companies involved in tobacco or ‘predatory lending’.
The second, trickier, step is picking firms with strong ethical credentials, which can range from the obvious, such as wind farm companies, to the more subtle, such as those that provide high levels of employment opportunities for women.
Jones’s strategy has proved successful, with returns beating rivals without ethical curbs, even while bond market yields have been pounded on the back of the financial crisis and quantitative easing. Jones looks for high- paying bonds issued by firms making a strong social impact, which surprisingly includes banks. Past purchases include Scandinavian banks that are strong on jobs for women.
The fund’s portfolio is made up of scores of bonds paying yields of up to 7.5 per cent. These include a bond from Aggregated Micro Power, a British firm that specialises in biomass energy installations, often used in schools and care homes.
Bryn feels particular affinity for regeneration projects helping the neediest. He says: ‘We invest in a bond issued by Glasgow Together, for example, which has a yield to redemption of 4 per cent. The charity buys beaten up properties and redevelops them by employing ex-offenders. If offenders are taught a trade then reoffending is low.’ Jones says: ‘Having come from a workingclass background these kind of projects hold appeal.’
Geopolitics is an influence for geography graduate Jones. When the French presidential elections were under way in the summer and fears were mounting about Marine Le Pen’s potential rise to power, he bought bonds on good yields issued by the French equivalent of building and friendly societies. Jones was convinced – correctly – she would not win.
Similarly, he felt the falling yields on UK gilts following tensions over North Korea and its nuclear intentions were overblown. He says: ‘We sold interest rate-sensitive assets and then bought them back cheaper.’
Juliet Schooling Latter, of broker Chelsea Financial Services, is a fan of the fund. She says: ‘It has managed to outperform regardless of its ethical constraints. It is consistently one of the highest yielding in its sector and is a solid core investment-grade fund.’