NUCLEUS SUPER

Ethical investing is frankly confusing. There are plenty of good products, but also a number of products whose promoters may not be as ethical as the stocks they invest in…

For Nucleus Wealth’s Head of Investments Damien Klassen, there are three key issues:

1. What is the effect on investment performance
2. How are the stocks chosen
3. What are the fees

For a broader overview of ethical investing, including how much performance will be affected, see the full ethical investing blog post and webinar.

How are the stocks chosen

There are three different approaches that different ethical funds use to select stocks:

1. Positive ethical investing: This involves finding companies that are actively contributing to causes that you feel strongly about. It might mean investing in a solar manufacturer, a biotech with a potential cure for cancer or an electric car manufacturer.
2. Negative screening: This involves excluding companies that do not meet ethical standards. It may mean not investing in any companies that are involved in tobacco, that produce carbon or that make weapons.
3. Best of breed: This involves ranking companies on a range of metrics and excluding those that don’t meet particular standards. For example, a carbon/global warming strategy may exclude companies involved in brown coal or tar sands (generally considered the most polluting) but include companies that produce natural gas as it pollutes less.

Positive investing is difficult – finding stocks that are good quality and cheap is hard enough. If you find a stock with very positive ethical characteristics that is only average quality and the stock is very expensive should you buy it anyway, expecting a poor return?

Negative screening needs to be customised, which makes investing in an ethical fund difficult. One investor may think that tobacco is a terrible additive product but gambling is an individual’s choice. Another investor may have exactly the opposite view.

Best of breed can be similarly problematic. If you don’t want exposure to fossil fuels, then holding a gas producer with the view that it is “the least damaging, and it is cheap and so I think I can profit from it” can seem hypocritical.

Nucleus: At my fund, we decided that the best result for our investors would be to incorporate corporate governance screens into our stock selection process, and then to allow investors to add negative screens that customise the ethics to investors own views.

This is possible as we run managed accounts, but is something that you wouldn’t be able to do if you invested in a traditional managed fund.

1. Tactical Funds 

In these funds, we make the decision when and what mix of Australian shares, International shares, cash or bonds to invest in.

There are three sub-funds, and typically we will blend all three of these funds for you so that you get a mix of assets appropriate for your income needs and your risk preference: 

• Growth: In this fund there is a higher weighting of growth investments. Clients with a lower tolerance for risk can blend this model with other models to achieve a more appropriate risk outcome.
• Accumulation:  This is a conservative portfolio for investors who do not have an income requirement. There is a low weighting of growth investments, and we buy stocks in this portfolio without regard to the dividend yield.
• Income: This is a conservative portfolio for investors who have a preference for income rather than capital gains. There is a very low weighting of growth investments, and stocks in this portfolio are screened for yield.

2. Tactical Foundation 

This is a fund for investors with lower balances. It aims to provide investors with an introduction to the benefits of individual share ownership through a separately managed account, whilst still ensuring investors maintain a reasonable share parcel size.

 We again make the decision when and what mix to buy of Australian shares, International shares, cash or bonds.

Due to the lower balances though, direct international share ownership is not feasible and so this model achieves this through an individual Australian share portfolio, a selection of International exchange traded funds, and defensive holdings in bonds and cash.

3. Shares only portfolios

These are “carve outs” of the Australian or International parts of the above portfolios.

They are a core holding,  designed to have exposure to the large capitalisation part of the Australian or International market. Its intended for investors who wish to do their own asset allocation, and can use this fund to get exposure to higher quality and cheaper stocks in the Australian market.

The funds maintain minimal cash balances – i.e. the tactical funds above will reduce share weights when stock markets are expensive or risky, whereas this fund will remain fully invested. It is up to the investor to manage the asset allocation when buying this fund.

For more information, click here for our product page.

At Nucleus, we are dedicated to transparency. We want you to be able to see exactly where your money is invested and why.

We offer a range of transparency options:

A company profile on each company you own showing where it sits on our metrics and why it is in your portfolio
Detailed dashboards showing how your portfolio is positioned
24×7 access to performance and fee data  
A weekly podcast/webinar where you can ask questions 
We write up a detailed performance report each month, with a focus on current positioning and what we expect from markets
We also write blog posts frequently about markets 
You are welcome to call us or book a meeting if you have any questions not answered by the above.

Whilst engaging professionals to look after any part of your life is going to cost money, it should not mean the difference between a great and a less than ideal retirement. At Nucleus, we strive to keep costs low by cutting out the many middlemen that reside in most of the current investment options available today.

If you choose to invest with Nucleus there are three fees that are charged:

• A management fee paid to Nucleus for making the investment decisions of 0.64%.
• A platform fee paid to a 3^rd party platform provider (Praemium) not related to Nucleus. This money provides you with custodial services, tax reporting, online access and trading. The fee varies depending upon the amount invested (fully explained in the Product Disclosure Statement), indicatively an investor with $200,000 would pay around 0.50%, an investor with $2m would pay around 0.30%.

• Brokerage Costs. We have secured very low-cost brokerage. 

Costs are important.

Our mission is to provide a technology-based investment solution that delivers portfolio tailoring, transparency and world-class investment research to our clients whilst sharing the cost efficiencies that come with not needing a branch on every corner.

As an investor with Nucleus, you only pay the costs associated with your account, not for the managed pool as found in other alternatives, and take advantage of the minimised worldwide brokerage and administration costs that come with using a platform that is not owned by a large institution.

When you apply, we provide a full breakdown of the costs for your investment.