Summarising the Henderson Changes
Size does matter in fund management and the new Global Care Growth fund will give Henderon some scale. From 20th July 2012 Henderson expect that three of their ethical funds will roll into one.
This is a timely consolidation - it will not be so easy from 2013 with the advent of the Retail Distribution Review (RDR) which will require platforms (such as Cofunds and Skandia) to empower their investors to vote. 2012 will be the the year for Investment Houses to get their house in order.
This restructuring will reduce Henderson's 'ethical' offering to just two funds - Henderson Global Care Growth and Henderson Global Care Managed. After the changes, at least at first, Henderson will be running the third biggest global ethical equity fund, but will be still behind F&C and Jupiter.
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UK Ethical Funds
I was surprised when I reviewed the size of the Henderson funds against their peer group at how small they were, given Henderson's market presence in the market. At £80m the Global Care Income fund is currently totally dwarfed by its competition. If you combine the F&C Stewardship Income and Growth funds, F&C are managing £700m of UK equity money. While, whereever Peter Michaelis and his team end up, they might also consider tidying up the Aviva UK equity funds - taken together the Aviva UK equity funds total £327m.
It is easy to see from Henderson's perspective why they are consolidating. It is less easy to see why a UK ethical investor currently in the Global Care Income fund will accept this change and leave their money in the Global Care Growth fund. This is not because the Henderson Global Care Growth fund is not a good fund, but simply because the investor presumably bought the UK equity fund for a reason - he wanted high yielding UK equities.
Global Ethical Funds
In contrast investors should be very content with the consolidation of the Industries of the Future fund with the Global Care Growth fund. We know from conversations with George Latham before he left Henderson that he had been looking at a similar proposal. At 31st December 2011 there were only 7 different stock holdings between the funds as a result of ethical screen. George's inclination had been to reduce the impact of the ethical screen and roll the Global Care Growth fund into the Henderson Industries of the Future fund. However, this met with some stiff resistance from IFAs and investors who valued some of the more stringent criteria. At Holden & Partners for example the ethical screen was particularly important for a charity client of ours. Thus the new managment team, headed up by Graham Kitchen, have not diverged much from the old teams thinking - they have simply taken the other route.
What does this mean for the ethical investor?
Henderson have led the charge in the ethical sector at consolidation, but looking at the charts above and given what has happened at Aviva I suspect this will not be the end of 'consolidations' in the ethical sector. Others will be watching with interest at how this plays out. F&C may deem their Income and Growth funds to be big enough to retain their distinctions. There must be a case for some of the Aviva funds to be consolidated. And what will Jupiter do now? I had not appreciated how little money relative to its peer group the Jupiter Responsible Income fund has taken to date. If I thought the Henderson Global Care Income fund looked small at £80m, Jupiter's fund is less than half that.
Where will ethical investors go for UK dividends?
The big problem financial advisers have in the UK ethical equity space is investing in a fund which yields. There are only three funds currently which help ethical investors -F&C Stewardship Income, Jupiter Responsible Income and Henderson Global Care Income. Henderson have just announced their desire to withdraw and have explained their rationale elsewhere on this site. What will Jupiter and F&C's response be? Will we see them market their funds in the knowledge that there may be £80m of assets on the move? Will they take the view that investor lethargy will enable Henderson to hold onto these assets? Or will another player take note and decide that even with the problems the ethical screen clearly poses for a UK equity income fund it is worth a shot?!
Henderson here to stay - but watch out for more consolidations in 2012!
Corporate restructurings like the ones Henderson Global Investors have just announced are never easy for the people involved. Change is difficult and tough. The great news for the 'ethical' investor is that Henderson are making a statement from these consolidations that they intend to stay in the 'ethical' game for the long term. For the investor though it will soon be time to have to make some decisions. Henderson have started a chain of events that no one was expecting, but now that the cat is out of the bag, with Aviva's ethical funds on the move and the regulatory environment set to change from 1st January 2013 (RDR), expect more change just around the corner in an 'Ethical Shake Up'.
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