Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Charlotte Yonge. She is Manager of the Trojan Ethical Fund. Hello.
Charlotte Yonge: Hi, Holly.
Black: So, the clue is in the name I should imagine, but I'll ask anyway. What does the fund do?
Yonge: So, the fund was set up to preserve capital. We already have the Trojan Fund at Troy, which has been around for 20 years and we set up the Ethical version of that two years ago to preserve and grow our investors' capital but with ethical screens. And that was in response to client demand.
Black: So, when we think about those funds side-by-side, what sort of screens are in place there and how does that make the fund to differ?
Yonge: Yeah. So, we asked clients what was important to them and they fed back to us that they wanted to exclude certain controversial sectors. So, in equities, in practice, we own tobacco and alcohol in the main fund, which isn't included in the Ethical Fund, but also we're screening out fossil fuels, armaments gambling as well as government bonds, which are subject to EU or UN sanctions.
Black: And this is the $1 million question that investors always want to know. What impact has that had on returns?
Yonge: So, to date, it has not had a negative impact on returns. We had a good performance last year. We delivered 11%. And this year, it's slightly behind having been slightly ahead last year of the Trojan Fund, but it's not been a negative impact.
Black: And so, ESG is quite hot topic at the moment and it encompasses so many things. But what are some of the biggest trends that you're looking to engage within the fund?
Yonge: Yeah. So, I think globally the most important issue is climate change and we are focusing a lot on that. So, how are our companies going to get to net zero? When are they going to do that? And making sure that their disclosure is good, because that's really the first step. And then, there are so many other issues. Environmentally, plastics for us is probably the second biggest issue, and then socially, supply chains, there's a huge amount of work that we're doing there as well as on gender diversity, and that's an area where all companies have a lot of work to do. But we're engaging with businesses on that.
Black: And gender diversity is quite an issue that's quite close to your heart anyway, isn't it? Because you run a charity or involved in a charity that helps to promote that within the financial industry? So, what does that do?
Yonge: Exactly. So, I'm one of the cofounders of GAIN which stands for Girls Are INvestors, and we are trying to solve this issue which is particularly prominent in investment management, as I'm sure you'll know Holly, which is that 10% of senior decision-makers are currently female today, and we want to take that to 50%, which it should be, because diverse teams make better decisions. And we are really addressing that from the ground up, so getting more women to apply for entry-level roles by inspiring and informing them both at universities and schools, and we have an amazing network of around 400 volunteers who go out to do panel discussions, workshops, presentations at schools and are really just providing that role model for the next generation. And we've been really pleased with the traction so far.
Black: So, do you think it's working? Do you think more women are coming up through the ranks?
Yonge: Not yet. I think that's the problem. So, we find that around 20% of applicants for entry-level roles are female today. And clearly, that's a problem, because at the top of the funnel, you don't have enough women, you are also having a retention issue whereby women are not staying within the industry. So, we are really focused on that application level, and then there are some fantastic organizations like the Diversity Project, but really firms themselves who are trying to retain women more. And we think those endeavors just need to continue.
Black: So, if we take that back to the fund, how does that inform how you are investing?
Yonge: Yeah. So, I think the empirical evidence that I've become a lot more familiar with having worked on GAIN is that you do need diversity. It's not just by gender; it's socioeconomic, it's ethnic. And the companies that we see that are the most progressive on that front attending to also be really on the front foot with other things. So, if they have a really clear policy for diversity in the organisation, they're also probably more innovative, and they're also probably better on ESG generally. So, it's really understanding where the world is going. It's a great lens. If a company has good gender diversity, it's a very good lens as to how it might be running its operations more generally.
Black: Fantastic. Charlotte, thank you so much for your time. For Morningstar, I'm Holly Black.
