It's no coincidence that Australia has seen an explosion of ethical or socially responsible investment funds being offered to investors by the big banks and money managers. So has Australia found its newest eco-warriors to save the planet? Or have these money mangers just realised there's big money to be made in ethical investing? I'd guess the latter, but nonetheless from AMP Limited (ASX: AMP) to Perpetual Limited (ASX: AMP) and BT Investment Management Ltd (ASX: BTT), Australia's money managers are touting their green credentials.
Of course some potential investments like Woolworths Limited (ASX: WOW) still blur the socially responsible boundaries. Woolies for example continues to punt on poker machines and love of some Australians for the challenge of "winning on the pokies". While other socially responsible funds until recently held interests in mass coal transporter Aurizon Holdings Ltd (ASX: AZJ).
So is there a business that may be able to delineate itself from the eco-warrior aspirations of the mainstream, to win large fund inflows? Australian Ethical Investments Limited (ASX: AEF) recently announced it expects to nearly double underlying profit in FY 2014. This primarily the result of strong net fund flows and rising equity markets. If ever a business had the sun at its back, it's Australian Ethical. The challenge is to build a winning reputation by proving good returns are possible with a stricter ethical approach than those of its rivals. If management is also able to execute a sensible fee pricing strategy it could be a big winner over ten-year plus time horizons as momentum shifts towards its offerings.
The stock is tightly held so investors should enter with a price limit based on reasonable valuations. Market cap is around $41 million and forecast full-year underlying profit after tax is expected around $2.7 million. Given its growth potential, this suggests the stock is currently trading on reasonable multiples at around $38.
