Ethical investing isn’t just about excluding negative companies. It’s also about actively looking for ‘futurebuilding’ investments that will create a sustainable economy while delivering strong returns.
At Australian Ethical all our investment decisions are guided by the Australian Ethical Charter, which has been in place unchanged since 1986. The Charter is made up of 23 principles – 12 positive and 11 negative – and we develop ethical frameworks that interpret these principles so that we can apply them to our investments.
The negative screening process eliminates companies that cause unnecessary harm. That means we do not invest in fossil fuel companies, weapons manufacturers, gambling companies or logging companies (to name a few). On the other hand, we proactively seek out positive sectors that are enabling the transition to the new economy – such as renewable energy, education and IT. Healthcare is another positive sector because it enables people to live longer, healthier lives. We invest in healthcare companies that will benefit from society’s rapidly ageing demographic. As a result, it’s a key overweight in our Australian Shares Fund and will feature in the Australian Ethical Australian Shares Portfolio, where it makes up 20 per cent of the portfolio.
Healthcare is a sector with a huge demographic tailwind at its back. Like most developed countries, Australia is undergoing a ‘greying’ of its population as the ratio of older people continues to rise. In 2017 more than 3.8 million Australians (15 per cent of the total population) were aged 65 or over. That number is expected to increase to 8.8 million (22 per cent of the population) by 2057. Australians are also living longer: in 2054-55, life expectancy at birth is projected to be 95.1 years for men and 96.6 years for women. By that time, one in 1,000 Australians are projected to be aged over 100 – in 1975, it was one in 10,000.
Before we invest in any healthcare company we look at a wide range of issues, including whether the company has inappropriate sales and marketing practices (eg, misleading or inappropriate advertising or inducements to doctors). We also consider whether the company is undertaking research responsibly, which includes its approach to trials and testing.
Three ethical healthcare companies we invest in
Cochlear is an innovative company within the Australian Shares SMA strategy that designs, manufactures and supplies hearing devices. The devices are designed to bypass the damaged parts of the inner ear by electrically stimulating the hearing nerve. This sends a signal to the brain, where it’s interpreted as sound. Cochlear has a long pipeline of products thanks to its strong research and development operation.
Fisher & Paykel Healthcare is a long-term holding of the Australian Shares Fund, where it has been a strong performer for 10 years. The company, which was spun out of its household appliances parent in 2001, specialises in breathing apparatuses for intensive care patients and people who suffer from sleep apnoea. The big growth focus for Fisher & Paykel Healthcare at the moment is oxygen therapy for infants and children.
Healius, formerly known as Primary Health Care, owns 73 medical centres around Australia as well as a number of pathology and diagnostic imaging centres. The company’s balance sheet has stablised after a successful capital raising and a period of public speculation about corporate activity in the stock. Based on valuation metrics the company looks appealing in the context of the healthcare sector.
We will continue to invest in growing Australian companies that are helping build the healthy, renewable economy of tomorrow.
Mark Williams is the portfolio manager of the Australian Ethical Australian Shares Portfolio, available now on the Praemium platform.
This information has prepared by Australian Ethical Investment Ltd (ABN 47 003 188 930, AFSL 229949) without taking into account any client's objectives, financial situation or needs. No person should act on the information without first considering whether it is appropriate to their own objectives, financial situation and needs. Past performance is not a reliable indicator of future performance. You should obtain and consider the relevant Financial Services Guide and Product Disclosure Statement relating to a product before making a decision about whether to acquire that product.