Ausbil Active Sustainable Equity Fund

Funds Management

by Rachael Jones

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Ausbil Active Sustainable Equity Fund Chief Investment Officer, Paul Xiradis and Ausbil Head of ESG Research, Måns Carlsson-Sweeny, provide an update on fund performance, talk about what the fund looks for in businesses that fit the description of "sustainable", and discuss how these characteristics provide long-term above-market returns.

Rachael Jones: Hello. I'm Rachael Jones for the Finance News Network. Joining me today from Ausbil Active Sustainable Equity Fund is Chief Investment Officer Paul Xiradis, and Head of ESG research, Måns Carlsson-Sweeney. Paul and Mans, welcome to the Network.

Måns Carlsson-Sweeney: Thank you.

Paul Xiradis: Thank you.

Rachael Jones: Now first up before we talk about the fund in detail, congratulations on winning the Sustainable Investment Award at the Lonsec Award Ceremony. What can you tell me about that?

Paul Xiradis: We were pretty excited about that because we have over a number of years been really focused on ESG investment, and certainly we launched a new fund just recently as in inside of two years. And to win this award for the fund in a short period of time was certainly a fantastic outcome for Ausbil.

Rachael Jones: And, Paul, can you remind us of the objectives of the fund and your definition of sustainability?

Paul Xiradis: The objective of the fund is to deliver a solid return for our investors. Certainly return, which over the medium to longer term equals, if not betters, that of the underlying index. But we also do want to invest in companies which we believe are sustainable in nature. Are those companies which have a certain profile, which means that the earnings will be sustainable over the longer term.

Rachael Jones: Thanks, Paul. And over to you now, Måns, what are the characteristics of sustainable businesses, and how has this changed over time?

Måns Carlsson-Sweeney: Yes. So I think when the assessor company, we'd like to look at the sustainability of the business model itself. That's the very heart of it. So for instance, if you find that a company's business model relies on underpriced pollution, underpaid workers, weak enforcement regulation, or even illegal activities like slavery, we don't think that's going to produce sustainable earnings over time. So we think ESG is particularly good at finding downside risk, which the market has some price in, but it's also about opportunities. The world is changing. The world is decarbonising. That means the energy sector is going to change. We also see risks and opportunities in the commodity sectors, sector for various commodities. So it all comes down to assessing what we think that market might have overlooked and not priced in in terms of environmental, social, and governance risks.

Rachael Jones: Excellent. And back to you now, Paul, can you provide an update starting with the performance?

Paul Xiradis: The return of the fund has been very pleasing, for the period to the end of October, the three month performance is close to 1.75 per cent. Certainly for the financial year it is slightly better than that and for the calendar year it is close to 4 per cent over and above that of the benchmark, so we are very pleased with the return that the fund is generating.

Rachael Jones: And what can you tell me about any additions to the fund?

Paul Xiradis: We've been largely adding to our holdings over time. So it's more about just as we get flow in and also we have greater conviction in the names that we have. We've been adding to our position, so we haven't been expanding our holdings by any great extent, but there has been a new addition recently. We've introduced Ramsey Healthcare (ASX:RHC) to the portfolio. It's a sector that we do like for ESG purposes, but it's also a company which demonstrates some of the characteristics that we do like for the longer term, and certainly that is one of the best of breed of its kind particularly in hospital care.

Rachael Jones: And, Paul, sustainability is not guaranteed. We've had the banks in the spotlight recently. What can you tell me about this?

Paul Xiradis: Yeah, the banks have certainly had their fair share of a exposure of late for bad conduct. To some extent, it has been quite surprising that some of the areas that they have been poor at. But they are looking to improve that, and they have been improving that. The outlook I still think for the banks is such where it will be improving over time. I think that they have certainly learned from their lessons. They are increasing their compliance and also their systems to ensure that it doesn't happen again. And really, the banks do play a pretty vital role in the overall economic system. We need to have strong banks in order for the economy to continue to perform well. So from that point of view, it's a positive. But certainly in the near term, their earnings will be on a little bit of pressure as they make these adjustments.

Rachael Jones: And to the last question now, what is the outlook for the first half of 2020?

Paul Xiradis: Look, we're still encouraged as far as the outlook is concerned for the equities market. Part of the reason for that is we do expect interest rates to remain low, not only for this period, but for an extended period of time. If that is the case, good cashflow businesses which can demonstrate sustainability will be keenly sought after. And certainly this fund has a very good exposure to those types of companies.

Rachael Jones: Paul Xiradis and Måns Carlson-Sweeney, thanks very much for the update.

Måns Carlsson Sweeney: Thank you.

Paul Xiradis: Thank you.