Old Mutual ESG Unit Trusts

Update, November 2019

The biggest holding in the Emerging Markets ESG Index Fund is Tencent, a company which, it has now been revealed, conspires to report on the activities of Chinese Internet users to the Chinese government. This calls into question both the viability of this fund as an ethical fund (not that it advertises itself as such) and the viability of MSCI’s ESG screening.

November 2018

Old Mutual announced South Africa’s first ESG Index unit trusts, the Old Mutual MSCI World ESG Index Feeder Fund (factsheetand Old Mutual MSCI Emerging Markets ESG Index Feeder Fund.

Both funds exclude alcohol, gambling, tobacco, nuclear power and weapons, and there are currently no big fossil fuel companies listed in their top 10 holdings, though both do include fossil fuel companies.

ESG funds are designed to give preference to investments in companies that pro-actively manage or are intrinsically less exposed to environmental, social and governance (ESG) risks and issues. Index funds are designed to track chosen indices, in these instances, the MSCI World ESG Leaders Index and MSCI Emerging Markets ESG Leaders Index.

Both are of course offshore funds, though the latter fund does have an initial 10% exposure to South African equities.

Index funds offer reduced costs, though they can potentially also leave portfolio managers unable to respond to unexpected ESG-related events or developments affecting companies included in the base indices.

The biggest holdings of these unit trusts are currently financial services, telecoms and digital services.

The minimum monthly invest for these funds is R500. As they are 100% equity funds, they are not Regulation 28 compliant, which means neither can serve as a stand-alone fund in a retirement annuity.

Jon Duncan of Old Mutual has said that, “I acknowledge that these products might not met the requirement of investors who want full divestment, however I see this as a half step towards that outcome.”

“The application of ESG principles is important in assessing the long-term sustainability of companies in which to invest. Through this approach, we can offer a fully responsible investment option which seeks to avoid companies that may have long-term hidden ESG costs.”

There are different ways to measure the fossil fuel exposure of these funds. The table below offers a comparison of these different measures, and the long-term performance thus far of these ESG indices compared to the indices they are based on.