04 June 2020
4 min read

Advisers have typically viewed ethical funds as a tilt or ‘satellite’ in their clients’ portfolios. But now well diversified ethical funds like the Australian Ethical Balanced Fund are playing a more central role.

What is your reaction when a client asks you to invest their money ethically? For many advisers it elicits a groan – but not for the reason you might think. While there are more and more ‘socially responsible’ investment products coming to market, it’s difficult to find a well rated fund with a long track record across all asset classes. And then there’s the problem of ‘greenwash’ – is the fund as responsible as it claims to be? That’s vital to know to make sure the product aligns with your clients’ values. Finally, advisers have the extra burden of not only having to monitor the performance of the fund, but also having to keep an eye on any ethical concerns that may arise with the underlying stocks.

The Australian Ethical Balanced Fund is a well diversified and Lonsec-rated fund that can sit at the core of a socially conscious client’s portfolio.* Unlike other fund managers that offer a ‘socially responsible’ option alongside their mainstream portfolios, ethical investing is the only thing Australian Ethical does. All our investments are carefully vetted by our Ethics Research team to make sure they align with the Australian Ethical Charter, which has been in place since our founding in 1986.

Our Chief Investment Officer, David Macri, oversees the management of the fund. David has over 20 years of investment experience and has led the investment process and highly experienced investment team since 2012. The objective of the Balanced Fund is to provide investors with a balance between capital growth and a moderate level of income through a diversified portfolio of assets. The strategy of the fund aims to combine assets to maximise long-term returns and minimise volatility. Our medium-to-long-term focus enables us to look-through short-term noise and volatility and maintain a disciplined approach to re-balancing to the strategic asset allocation. So, what is the fund invested in? It invests in our internally managed domestic equities, international equities, small caps and fixed interest funds as well as external property and alternatives funds (more on those below) all of which have passed our rigorous ethical screening process.

Domestic equities

The domestic equities portfolio of the Balanced Fund is well diversified (holding approximately 120 Australian and New Zealand stocks) and makes up 31% of the fund’s overall strategic asset allocation. Over the decades we have developed unique approaches to portfolio construction to provide access to core market beta while still taking advantage of market inefficiencies.

The Balanced Fund invests in the Australian Ethical Diversified Shares Fund, which uses a systematic approach with a bias to larger and more liquid stocks in the domestic equities market and makes up 75% of the overall portfolio. The remainder of the portfolio accesses the key insights and alpha generation of our equities research team by investing in the Australian Ethical Australian Shares Fund and the Australian Ethical Emerging Companies Fund.

The performance of the Balanced Fund’s domestic equities portfolio has been excellent, delivering 10.5% per annum versus the S&P/ASX 200 Accumulation index return of 5.4% per annum over the seven years to 30 April 2020.

International equities

The Balanced Fund gains its exposure to international equities via the Australian Ethical International Shares Fund. It has a strategic asset allocation of 24%.

Our screening approach leads to a unique investable universe in international equities. The portfolio construction process ensures broad diversification and has similar characteristics to the MSCI World ex Aus index which is widely used as the benchmark for this asset class. Of course, our screening approach leads us to different sector positions (for example, we do not invest in coal, oil and gas companies), but overall the risk/return profile of the portfolio is similar to that of the benchmark.

Fixed interest

The fixed interest exposure for the Balanced Fund is gained by investing in the Australian Ethical Fixed Interest Fund. It has a strategic asset allocation of 23%. Our aim is to construct a portfolio that will deliver performance and volatility in line with the benchmark, being the widely adopted Bloomberg Ausbond composite index.

The Balanced Fund also has a strategic asset allocation of 7% to cash, floating rate notes and short-duration fixed interest and it gains this exposure by investing in the Australian Ethical Income Fund which has the Bloomberg AusBond Bank Bill Index as its benchmark.

While the benchmarks of both are ‘mainstream’ indices, rest assured all investments are screened using the same proprietary ethical approach that looks to avoid harm to people, planet and animals and provide clients with more positive portfolio outcomes.


The Balanced Fund has a 10% strategic asset allocation to property and currently invests in three unlisted direct property funds:

  • The Investa Commercial Property Fund
  • The Dexus Wholesale Healthcare Property Fund
  • The Australian Unity Specialist Disability Fund

These investments provide the Balanced Fund with exposure to office, healthcare and disability accommodation while avoiding more challenged sectors such as retail property. All property funds were put through extensive due diligence to ensure they are not only aligned with the Australian Ethical Charter, but that they provide an excellent investment exposure for our investors.


We are currently building out our exposure to alternatives with existing capital commitments to three investments equal to approximately 5% of the Balanced Fund. At present, the fund is invested in two venture capital funds: the Right Click Capital Growth Fund and the Artesian Clean Energy Seed Fund. However, the majority of the exposure is invested in the Morrison & Co Growth Infrastructure Fund, which provides exposure to real assets within thematics including decarbonisation, increased connectivity and food & water scarcity.

Why invest?

The Australian Ethical Balanced Fund is a strong performing fund with good risk and return characteristics. The retail version of the fund has a track record of over 30 years†. In accordance with the Australian Ethical Charter, the fund has no exposure to fossil fuel companies and has significant overweights to IT and healthcare (relative to the S&P/ASX 200 index). It’s a well-diversified fund that can comfortably sit at the heart of your socially conscious clients’ portfolios to support their long-term investment and ethical goals.

For more information on our range of investment products please visit the adviser page on our website.

*Ratings are issued by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec). Visit lonsec.com.au for ratings information and to access the full report. © 2020 Lonsec. All rights reserved.

Past performance is not a reliable indicator of future performance.  This information has been 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. 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.

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