The EdenTree Amity UK fund is fourth quartile in the UK All Companies sector over a six-month period, returning 4.1% compared to a 6.2% average among its peers.
The ethical fund’s January factsheet shows it has under performed its sector over one, three and five years, but has outperformed over 10 years, returning 110.8% compared to 87.7%.
Round (pictured) told Portfolio Adviser “savage downgrades” were to blame for the recent underperformance, listing Provident Financial and funeral services business Dignity as examples.
Round is not the only fund manager to feel pain in her portfolio due to Provident. Neil Woodford and Invesco Perpetual’s Mark Barnett hold a combined 48.3% of the business. The stock contributed to Woodford’s difficult 2017 during which his fund returned 0.8% during the year compared to 11.3% in the UK Equity Income sector and 13.1% in the FTSE All Share.
Despite describing Provident as a stock that has been “hurtful” for the portfolio, Round defended the company, both from an investment and ethical perspective.
“Provident Financial is a good example of a company that had a very stable business model.” Round said. “Although the short-term weekly flexi-credit market is contracting it still provides a service to a group of customers who would not meet mainstream requirements.”
The fund literature states it aims to achieve capital appreciation and “reasonable” income over the long term through investing in companies that make a “positive contribution to society and the environment”. Round said only one person, a financial adviser, had questioned whether Provident Financial was appropriate for an ethical portfolio.
“It’s one I feel quite strongly about that you need to have financial opportunity that is available in a regulated way. Maybe you’re paying a higher interest rate, but you are at least looked after in a regulated environment.
“It’s easy to say Provident Financial is a high interest rate operator and therefore it’s unethical. I would say the way they have managed their business, up until recently, was much more expensive. You’ve got people working, going around knocking on doors, they’re building up relationships with customers.”
Round added that customer satisfaction sat around 94% in most surveys.
More investors ask about the fund’s pharmaceutical holdings when it came to ethical queries, Round said.
While Round has stuck by Provident during its difficulties over the last year, the fund did not use recent share price falls to add to its position.
In contrast, Woodford has used recent stock weakness to build his stake in the lender, with an RNS filing from last week showing his stake in the company has increased from 23% to 24.4%.
Financials are the second largest sector allocation at 18.8% behind industrials, which account for 24% of the fund. The next largest sectors are consumer services and health care, representing 15.9% and 13.1%.
Prudential and Legal & General are among the fund’s top-10 holdings representing 2.2% and 1.9% respectively. Dechra Pharmaceuticals, Halma and Scapa are the top three holdings, representing 3.8%, 3.4% and 2.8% respectively.
