Aegon Ethical Equity Fund Class A Accumulation Units

It has been a tough period for many ethical funds, and the Aegon Ethical Equity Fund has lagged behind the UK All Companies sector over the last year. Ethical funds exclude virtually all mining stocks, so when this area of the market does well, as it is has recently, they tend to lag behind. This fund has also suffered from its high exposure to insurance companies, which have underperformed the market of late but now look good value.

However, stronger performance has started to show through in recent months and the fund has been relatively resilient during the latest market volatility. The manager, Audrey Ryan, has prioritised exposure to companies generating earnings from the US, emerging markets and Asia, because she is more positive that growth can be achieved in these areas. This is a strategy I believe should benefit the fund, especially if Sterling remains weak.

Examples of such holdings include Aggreko, which leases power and temperature control equipment worldwide, as well as Ashtead, which operates the third-largest equipment rental business in the US. Interestingly, Ashtead's US sales have grown to be four times larger than those from the UK, so although it is listed in the UK its US business is now of far more importance to profits. Audrey Ryan has also invested in Millennium & Copthorne, a hotel business with significant exposure to Asia, the US and Australasia.

In contrast, she is more cautious on firms dependent on consumer spending in the UK, which she expects to face difficulties. In light of this she has cut exposure to holdings such as Carpetright and newspaper publisher Trinity Mirror. However, she does feel there are some exceptions and still sees value in pub chain JD Wetherspoon. She also views corporate spending in the UK as being fairly resilient and is comfortable holding businesses exposed to this, for example recruitment firms.

The fund has had a difficult period in relative terms but the global exposure in the portfolio is currently paying off. Audrey Ryan has a good long-term record of stock picking and we feel investors in the fund could benefit from this over the longer term. Please note that the fund invests in smaller companies, and can be concentrated, which can increase the overall risk.