If you are looking for products with an ESG or sustainability focus, the Portfolio Exclusion Indicators could be a useful search criteria to use.
They are provided to aid in identifying products which may have a tolerance to exclude/ limit exposure to a certain industry/ product from their portfolios.
The Portfolio Exclusion filter lets you search for products with no/ limited exposure to 10 controversial industries and are available for all managed funds, super options, ETF’s and LIC/LITs Lonsec rates.
The areas covered are:
- Adult Entertainment
- Alcohol
- Coal Mining
- Fossil Fuel
- Gambling
- Gold Mining
- Mining
- Tobacco
- Uranium Nuclear
- Weapons
These FAQ's provide more information on how to apply these filters and the approach for collecting the data.
How can I use this information in my product recommendations?
The Portfolio Exclusion Indicators are provided as an option to aid users in identifying products which may have a tolerance to exclude/ minimise investment in a certain industry/ product from their portfolios.
Each product issuer will have their own internally derived materiality level to determine what is permitted as an acceptable investment level in that industry, for example one manager might apply a 5% of revenue materiality threshold when measuring and applying a tobacco exclusion whereas another manager might apply a 0% or 10% materiality threshold.
Lonsec does not verify the materiality threshold of each manager and it is therefore recommended you review the PDS for a product to confirm the strength of exclusions align with your client’s investment goals.
How can I determine what is defined as an exclusion for each category?
Lonsec asks the managers to confirm (yes/ no) if they permit investment in stocks or bonds for each exclusion. For example:
- Fossil Fuel Powered Energy - does the product permit investment in fossil fuel powered energy stocks or bonds?
- Gambling - does the product permit investment in gaming/gambling manufacturers stocks or bonds?
- Alcohol - does the product permit investment in alcohol manufacturers stocks or bonds?
- Tobacco – does the product permit investment in tobacco manufacturers stocks or bonds?
- Uranium / Nuclear - does the product permit investment in uranium mining or nuclear energy stocks or bonds?
- Weapons - does the product permit investment in weapons manufacturers stocks or bonds?
- Coal Mining - does the product permit investment in thermal coal mining stocks or bonds?
- Gold Mining - does the product permit investment in gold mining stocks or bonds?
- Adult Entertainment - Does the product permit investment in adult entertainment stocks or bonds?
In iRate Excluded means the manager has confirmed 'No' they do not permit, or limit at a determined threshold, investment in stocks or bonds for that exclusion category.
How is it determined what level of materiality is applicable for an exclusion for each category?
Each manager will use a differing level of materiality in determining the application of these filters.
For example, one manager might apply a 5% of revenue materiality threshold when measuring and applying a tobacco exclusion whereas another manager might apply a 0% or 10% materiality threshold. Some managers might only consider tobacco manufacturers, while others might look across the value chain and might also exclude significant distributors or retailers of tobacco.
Lonsec advises clients review the PDS to identify the strength of exclusions applied.
Where is the information sourced?
The portfolio exclusions indicators data is provided to Lonsec by the manager on its own, internally derived, portfolio exclusions.
The information is provided, at a minimum, annually by the manager as part of the Lonsec research review process. The data in iRate is refreshed on a quarterly basis, unless notified of a material change for a product in the interim when the impacted data will be refreshed at that time.
What is the coverage for the Portfolio Exclusion Indicators?
The Portfolio Exclusion Indicators are available for all managed funds, super option, ETF and LIC/LIT products Lonsec provides a rating for.
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