Devon Funds has increased its retail product suite to six with the launch of a new Australasian equities Sustainability Fund last week.
The environmental, social and governance (ESG) flavoured fund has both a long list of excluded sectors as well as a tilt to stocks on a positive sustainability trajectory.
As well as the now common exclusions of companies involved in tobacco, weapons and alcohol, the just-launched Devon fund will also avoid business that have a “meaningful” operational exposure to fossil fuels (exploration and extraction) and gambling.
From the remaining sin-free universe of Australasian stocks, the Devon fund will select those companies with “strong ESG credentials” or show a willingness to address sustainability issues.
According to a release, Devon would engage with companies looking to improve their ESG performance “to ensure they deliver to expectations”.
Devon managing director, Slade Robertson, said in the statement that the Auckland-based boutique had “always taken significant steps to incorporate ESG factors into our investment process”.
“We recognise that exclusions are an important tool to apply, but we also believe that active managers need to go further to demonstrate how sustainability signals are being incorporated to identify strong investment opportunities – this new strategy will explicitly represent our views in this space,” Robertson said.
The Devon Sustainability Fund carries a total annual fee of 1.25 per cent.
In its latest NZ annual report, the Responsible Investment Association of Australasian (RIAA) found for the first time that most funds favoured engagement over exclusion as the most influential factor in creating ESG portfolios.
Elsewhere last week, Nikko Asset Management went public with its revamped fixed income fund, pitching a 3 per cent annual distribution to investors squeezed by record low interest rates.
The updated Nikko income fund builds on a product first launched in 2007, which reported assets under management of about $3.4 million as at the end of June.
Previously, the income product targeted an asset allocation split 70/30 between the Nikko NZ Corporate Bond and Options funds, respectively.
Under the revised income fund strategic asset allocation, the manager can invest up to 30 per cent in Australasian equities, 62.5 per cent in NZ fixed interest and the remainder in alternatives – all executed through various other Nikko products.
The new income product does retain some exposure to the Options fund, according to George Carter, Nikko NZ chief.
Carter said the manager had pared back the Options fund allocation in a number of other diversified Nikko retail products as well.
The income fund portfolio makeover also comes with a reduced price-tag of 0.81 per cent compared to the previous version’s total expense ratio of 1.25 per cent.
Carter said the restructured fund was designed to tap into a growing demand for a reasonable level of regular income in an era where term deposits and other ‘safe’ investments sink close to zero.
“… we are confident that the new Income Fund can meet these investors’ risk criteria and also generate additional regular income for them; income which is hard to come by in a low interest rate environment,” he said in a release.
Investors have to take on more risk to garner higher returns, Carter said, but might struggle to manage the multiple asset class approach used by professional managers.
“Ultimately, investors can only increase returns by taking on equity, credit or duration risk,” he said. “But there’s a big difference between managing a diversified portfolio of high yielding equities and bonds – and just rolling over a term deposit every year.”
The income fund is currently distributed through the Nikko GoalsGetter platform with the 3 per cent annual income paid in quarterly instalments.
Any return above the 3 per cent would accrue in the unit price.
Carter said Nikko would reset the rate at the end of every year according to forecast market conditions.