The Ethical Dilemma

Hi Scott,

I have a question about ethical investing. Having done some research on ethical funds, I find myself stuck between two extremes. Some have low fees but are not ethically stringent enough for me. Some are super stringent but have high fees. I want something in the middle. So I was wondering what your thoughts were on Morphic Asset Management, which is seeking to raise more than $200 million for the Morphic Ethical Investment Trust, to be listed on the ASX.

Louise

Hi Louise,

Choosing a fund boils down to two things: do you understand it, and how much are they charging?

Here’s how Morphic explain their fund:

“This will be an opportunity to invest in an ethical long/short equity fund providing you with diversified exposure to a portfolio predominantly comprised of global listed Securities and Derivatives that comply with the Company’s social and environmental guidelines.”

Louise, before you invest your hard-earned with them, you need to understand that paragraph.

Okay, now onto the costs. As an investment grump I pick up the prospectus and skip past all the pretty pictures and all the marketing guff, and go straight to the fees -- since that’s the only thing in the prospectus that you can actually count on happening:

They’re charging 1.25 per cent per annum, plus a 15 per cent outperformance fee.

That’s too damn high for me. Research from Standard and Poor’s proves that 80 per cent of fund managers can’t reliably outperform a cheap index fund over the long term.

So if I were in your shoes, I’d invest in the UBS Ethical International Fund (ASX:UBW). It’s simple to understand: it’s an international index fund that screens out companies involved with tobacco and weapons. How much do they charge? A low 0.35 per cent.

Scott