3 reasons we like Australian Ethical Investment (ASX:AEF) right now

Australian Ethical Investment (ASX: AEF) is one of the best ways to leverage the growth in ESG investing on the ASX, because it is right amid the action.

The ESG fund manager has experienced significant growth in its customers and funds under management in the past few years, both due to increasing awareness and desire for ethical investing as well as the solid performance of the company’s funds. But the stock is off all time highs reached when interest rates were near zero. So, with rates now set to go down, should you buy AEF right now?

Introduction to Australian Ethical Investment 

Australian Ethical Investment is an ethical wealth manager, offering superannuation, pension and investment funds – predominantly equities and fixed income. It was founded in 1986 and listed on the ASX in 2002. Much of AEF’s existence has been a slow and steady journey, only surpassing $1bn in Funds Under Management (FUM) in 2014.

But after taking 28 years to get to $1bn, AEF took 10 years to get to $10bn. Why? Because in recent years, ESG investing has become more and more popular as investors have become increasingly aware of ESG issues – such as climate change, carbon emissions and company governance – and such factors can positively or negatively affect investments.

People want to invest ethically

A survey by the Responsible Investment Association Australasia (RIAA), released in March 2024, found 88% of Australian expect their superannuation and other investments to be invested ethically. 76% said they would be willing to switch providers if their current fund didn’t align with their values.

Australian Ethical has successfully leveraged its market position and expertise to capitalise on these trends. Five years ago, it had $2.9bn in FUM and 45,000 superfund members. Today, it has $10.3bn in FUM and over 130,000 customers. Moreover the company is profitable (with $18.5m in FY24, up 57%), and it paid a dividend of 9c per share.

Australian Ethical shares have been volatile

Australian Ethical’s share price has largely followed suit with the company’s growth, growing nearly 600% between May 2019 and November 2021. Shares had a torrid 18 months thereafter as interest rates rose and the market lost appetite for listed fund managers as the performances deteriorated.

Australian Ethical did not fare as badly as its peers, but still saw a drop in performance, even amongst its purportedly ‘defensive funds’. Furthermore, as a stock that had grown so much since the Corona Crash, Australian Ethical was an easy stock to sell.

At the same time, those who have stuck in for the long-term have made good returns too. Just check out the performance in the long-term. Its Australian Shares super option has made 10.4% p.a., rated number 1 for returns over 10 years out of 42 funds. Its High Growth Managed Fund made 8.8% per annum, rated number 6 for returns over 10 years. Moreover, it is easy to tell which stocks it invests in because it has to disclose any substantial shareholder movements in any ASX company – it invests in a lot of ASX companies. Here are some of the specific super fund performances as of November 30, 2024.

Source: Company

So, is Australian Ethical a buy at the moment?

Yes. It has a proven track record of growth and we think Australian Ethical still has upside left in it as it continues to grow its FUM and investment performance. The reduction in interest rates should help its ASX investments, and the company too.

The biggest risk we see is global financial markets entering another correction, which would risk the performance of Australian Ethical’s investments. But we still believe, the company will grow in conjunction with ESG investing because for Australian investors, there are few (if any) other choices in that space.

So, in conclusion, at the current share price we believe AEF presents a good entry opportunity for long term investors, particularly those with an ESG focus. There is practically no other ethical fund manager on the ASX, and very few in the market generally with the proven track record that it has.

What are the Best ASX Stocks to invest in right now?

Check our buy/sell tips

Frequently Asked Questions about Australian Ethical Investment

• What is Australian Ethical Investment?

  AEF is an ASX-listed fund manager specialising in ESG type investments.

• Is Australian Ethical Investment an Australian company?

  Yes, AEF is based in Australia with offices in Sydney and Melbourne.

• Does Australian Ethical Investment pay a dividend?

  Yes, the company paid out 7 cents over the last twelve months to June 2023, followed by 3 cents per share for the six months to December 2023.