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eInvest brings ethical investing to small caps with IMPQ

Today we take a look at eInvest’s latest Active ETF, the eInvest Future Impact Small Caps Fund (IMPQ), a fund that aims to combine ethical investing and small company investing.

By ETF Watch - Jun 10, 2019

Launching their first Active ETF last year, eInvest is a relatively new name in the world of ETFs. However the company behind eInvest are one of the largest largest fund managers, Perennial, who manage of $5 billion in funds.

eInvest’s first foray into ETFs, the eInvest Income Generator Fund (EIGA) aims to provide investors with monthly income through the form of fully franked dividends. Launched in May 2018, it now has a market capitalisation of $22m.

Today we’re going to take a look at eInvest’s latest Active ETF, the eInvest Future Impact Small Caps Fund (IMPQ), a fund that aims to combine ethical investing and small company investing.

What is IMPQ?

According to eInvest, IMPQ aims to provide you with attractive levels of capital growth in investments that also contribute positively and sustainably to society and the environment. They do this by investing in predominately in Australian and New Zealand listed Small Caps. IMPQ aims to achieve a return greater than the S&P/ASX Small Ordinaries Accumulation Index while sustainably contributing to society and the environment.

What are IMPQ’s Ethical Screeners and investment criteria?

As we have written about in the past, the biggest issue with ethical investing is that investors’ ethical boundaries can differ, where an industry that may be deemed ethical by one investor, may not meet another investor’s ethical standards. Below we take a look at both the ethical and investment criteria screeners of IMPQ.

Universe Screening;

The fund first looks for companies with a minimum of $50m in size.

ESG & Engagement Filter

Next, the fund eliminates companies who earn more than 10% of their income from one of:

  • Fossil Fuels
  • Alcohol
  • Tobacco
  • Weapons
  • Forestry activities
  • Gambling activities
  • Unhealthy fast food

The above are classed as negative screeners, where companies are excluded based on failing on certain perceived negative ethical components.

Ranking Screen

Next, IMPQ completes valuation and responsible investments screen, including prioritising companies who:

  • Have high ESG (Environmental, Social, Governance) scores.
  • Have attractive valuations
  • Have strong balance sheets
  • Have strong cash balances.

After applying all of the above, the fund finds 20 to 70 companies (but generally 30-45) to invest in, to create a small company ethical portfolio.

How has IMPQ performed?

Whilst IMPQ is a new fund, it has been based on an existing Perennial fund, the Perennial Sustainable Future Trust. Whilst the trust still only has a short history, launching in February 2018, its 12 month performance at April 2019 is 10.2%, outperforming the benchmark S&P/ASX Small Ordinaries Accumulation Index by 3%.

What other ETFs and LICs exist that focus in this space?

Ethical ETFs were a scarce commodity only a few short years ago. However as many younger investors turn to ETFs as their investing vehicle of choice, and demand for ethically conscious options increases, so too have the options available to investors.

Going back through the archives, the following posts focused on ethical offerings:

We have one post which sums up at least all of the Ethical ETFs available on the ASX available here. When it comes to LICs, Morphic’s Ethical Equities LIC (MEC) and the reasonably recently rebranded Australian Governance & Ethical Index Fund (AGM) are currently the only two offering an ethical bias.

For investors looking to blend Australian Small Caps and Ethical investing, IMPQ stands alone. All of the above funds have a larger cap bias. Additionally, IMPQ is the only actively managed ETF with a ethical focus. We’ll be keeping an eye on how it performs over time.

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