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Financial Times: Riding the global green wave

EXTRACT: The fund has seen performance improve by not holding either Royal Dutch/Shell or BP. A few years back, Henderson researchers looked at BP and identified some of the failures in maintenance and safety problems at the oil and gas group, which recently surfaced as a story in the media. While shying away from oil majors has helped performance…

THE ARTICLE

By Ellen Kelleher
Published: June 25 2007 03:00 | Last updated: June 25 2007 03:00

George Latham, manager of Henderson’s £128.88m Global Care Income fund, a socially responsible investing fund, is keen to express his views on the surge in interest in green investing.

“New dedication to green and social causes is forcing a tectonic shift in the economy. It’s like a form of globalisation,” he says.

The fund, which invests in European holdings, consists of a mix of blue-chip stocks that are either benefiting from a change in the economy or managing corporate responsibility programmes well. Risky companies tend to be avoided.

Top holdings include Lloyds, GlaxoSmithKline, HBOS, HSBC, Vodafone, Prudential, BT, Alliance & Leicester and BG Group.

The fund has seen performance improve by not holding either Royal Dutch/Shell or BP. A few years back, Henderson researchers looked at BP and identified some of the failures in maintenance and safety problems at the oil and gas group, which recently surfaced as a story in the media.

While shying away from oil majors has helped performance, Mr Latham has been unable to take advantage of the rise in the value of mining stocks due to the fund’s ethical standards. “That’s been a bit of a disappointment,” he says.

In running the fund, Mr Latham relies on 10 themes. These account for about 30 per cent of the fund’s portfolio. Five of them are “green”. Clean energy is one and Mr Latham is bullish on Clean Energy Brazil, a UK-listed group that invests in sugar cane and ethanol in Brazil.

“Sugar cane ethanol is more efficient to make than corn ethanol,” he says. “It can compete effectively with gasoline.” Resource efficiency is another, and environmental services a third. Sheffield Insulations, which has a big share of the market in the UK, is a favoured pick and so is RPS, an environmental consulting group.

Another “themed” sector Mr Latham likes is sustainable transport groups. And water utility groups also offer value, he says.

The last portion of the portfolio is dedicated to investing in companies that show a sustained commitment to corporate responsibility. Here, Mr Latham likes BG as he considers the group dedicated to environmental and social governance. It also has a strong record and outlook for production growth in his view.

Marks and Spencer is a more predictable pick given the retailer’s devotion to reducing carbon exposure. On a practical level, Mr Latham likes it for the turnaround in its management and operations. But on the whole, he remains cautious on the retail sector and is underweight.

Going forward, Mr Latham thinks the frenzy of mergers and acquisitions, powered by cheap funding and low bond yields, may soon reach its tipping point.

“There is a risk some of the M&A activity will lessen and that could have a knock-on impact on the shape of the UK market,” he concludes. Large-cap companies are increasingly offering better value than mid caps in some areas, although Mr Latham aims to avoid companies with “beefed-up” valuations.

The fund’s performance in the short term has been good. In the last six months, the fund reported a 7.4 per cent return against a 6.23 per cent return by the average UK equity income fund, according to Morningstar. In the last year, the fund posted a 26.7 per cent return against a 22.11 per cent return by the benchmark.

See the Fund Focus from Tuesday to Friday in the managed funds pages

Copyright The Financial Times Limited 2007

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