Keen to be green? Fine but think twice about outsourcing your ethics

AS THE market has dipped over the past few weeks I've been adding bargains to my portfolio. What have I been buying?

Leaves

AS THE market has dipped over the past few weeks I've been adding bargains to my portfolio. What have I been buying?

I have been bingeing on Coca-Cola Amatil, KFC restaurant operator Collins Foods, and the maker of Four'N Twenty pies, Patties Foods.

I like to call these additions my Shane Warne portfolio (well, Warney of the 90s before he met Liz and went all tanned-and-tofu).

"I'd never invest in any of those companies," pooh-poohed Sue, our 60-something customer service officer at team Barefoot.

Sue's profile on our website states her interests as "social justice, her Lhasa Apso terriers, and art-house films".

I pointed out that Sue was in fact already an owner of Coca-Cola, coal seam gas projects and, most likely, Crown casino. She was mortified.

"You're talking about my super fund, aren't you?" she said. "Well, I've been thinking about moving my super across to an ethical fund - what do you think about them?"

An ethical investment?

I EXPLAINED to Sue that I wasn't a huge fan of ethical or "socially responsible" managed funds, for a couple of reasons:

First, you're relying on someone else's ethics to determine what constitutes an ethical investment - which can become suddenly flexible in the chase for higher returns.

Case in point, over the years I've seen ethical funds have holdings in the world's largest miner, BHP Billiton.

It's also hard to work out where your money is actually invested.

Unlike the rest of the world, Australian fund managers are not required to disclose on a regular basis their underlying stock portfolios. Just like Heart Foundation-approved Big Macs.

Second, you'll pay a premium for investing in an ethical fund, even though the returns are roughly comparable to mainstream funds. Sound familiar to all those who buy "organic" products?

According to Morningstar, the current average ongoing fee for "ethical" funds is 1.71 per cent per annum, while the average "dirty" fund is 1.38 per cent.

Outsourcing your ethics

THE approach I take is that it would be highly unethical of me as an investment advisor to presuppose someone else's ethics - and earlier this year I proved it.

One of my most successful stock recommendations for my investment newsletter has been the Thorn Group, which operates the highly successful Radio Rentals.

It's up an impressive 55 per cent since our initial recommendation. When I made the recommendation I said that I wouldn't personally invest in the business because I didn't agree with how they make their dough (I've seen too many battlers spend thousands of dollars renting a $200 couch).

Yet it might not worry anyone else in the slightest.

I said to Sue that ultimately, she couldn't outsource her ethics.

In our current capitalistic society, what each of us does with our money - both in terms of spending and investing - holds immense power. Use it, or lose it!

Good week, bad week

REGARDLESS if you're a tree-hugging hippy or a hard-nosed capitalist, it's been a tough week for all investors.

Let's take a look at the winners and the losers:

Good week for the lowest-paid Aussies

THE Australian Chamber of Commerce came out and slammed the "excessive" pay rises awarded to 1.5 million of Australia's lowest-earning workers.

Who are these people? Well, it's hard to say since many of them don't wear name tags.

But I'm pretty sure they're the people who clean our toilets, serve our champagne and gift wrap our designer watches.

They got an "excessive" boost of $15.80 a week, or an extra 41c an hour.

The real issue facing employers is not the minimum wage - we'll never compete with Asian wages - but it's the weekend penalty rates that are killing small business.

Bad week for youth in the eurozone

THIS week unemployment in the eurozone reached another record high.

There are now more than 19.4 million people out of work.

But those statistics also showed us that almost one in four young people under the age of 25 are unemployed: and in certain countries it's much worse than that.

In Greece it's 62.5 per cent, in Spain it's 60 per cent, in Portugal 42.5 per cent, and in Italy it's 40.5 per cent of all young people.

What we're seeing is the start of a lost generation - young people who are missing out on the life-changing, character-building opportunity of earning money and having the opportunity to chart their own destiny.

European leaders need only look at the protests that are happening in Turkey, which are mostly made up of disenfranchised young people that are fed up with their government not listening to them.

Good week for Qantas

YEARS ago, budget airline Ryanair worked out a way to win the losers game: switch and bait pricing.

They offer extremely low airfares, and then slug customers for practically everything else: checking in bags, seat upgrades, buying food and beverages, credit card fees, onboard entertainment, penalty fees, and scoring commissions from spruiking car companies and hotels.

Most airlines have followed Ryanair's lead, and this week a report that ranked the income airlines make from so-called "ancillary fees" was released.

It found that three Australian airlines made the top 10 list - Qantas, Jetstar and Tiger - Virgin only missed out because they didn't disclose their figures.

Surprisingly, the report found Qantas had the largest revenue per person in the world, at $56.21 per passenger.

But the flying roo is a full-service airline, that doesn't charge for food, (most) drinks, and entertainment. So how did they become a world leader?

It largely comes from their Frequent Flyer program, which reportedly made the airline around $1.1 billion last year.

How? When you see retailers offering bonus frequent flyer points, or co-branded credit cards, these retailers and banks have to buy the points from Qantas.

It's a quasi currency - and with over seven million members, many that are hungry to get a free flight, Qantas sets the price.

Bad week for Billabong investors

BILLABONG'S share value has dropped roughly 97 per cent since 2007 - and for some very good reasons; it's lumped with a $300 million debt, an ageing brand that only appeals to 40-year old dads, and poor management.

That hasn't been enough to deter some investors from paddling out to try and catch a share price wave.

This trading "strategy" is called trying to catch a falling knife or - perhaps a more apt description for Billabong shareholders - is being totally wiped out, drawn under the break, and spat out near the sewage pipes.

Tread Your Own Path!

Contact Scott Pape at barefootinvestor.com or [e-mail]