It is still commonly believed that ethical investment funds are likely to under-perform against conventional investment funds, i.e. funds of a similar type or sector, which do not have to operate within a restricted, or screened, investment universe.Surely, says the sceptic, in the brutal and even slightly immoral world of investing, ’ethics’ has no real place? And when the first ethical funds launched in the mid-1980s they were indeed viewed by many as a temporary aberration. Twenty or so years later there are over 100 funds available to UK investors offering a screened or ethical approach to investing and total assets under management have grown very considerably (EIRIS the leading ethical investment research service shows around £11bn invested in UK ethical funds).
So do ethical investment funds perform?There is no evidence that operating within an ethically screened investment universe produces underperformance. In fact there are a reasonable number of ethically invested funds which have consistently beaten many of their non-screened peers. These include: Kames Ethical Equity Sector – UK All Companies Five year performance – 7.08% Five year performance for the sector – 2.07% Rank with fund sector – 78 of 244 Aberdeen Ethical World Sector – Global Five year performance – 13.02% Five year performance for the sector – 8.08% Rank with fund sector – 63 of 162 First State Asia Sustainability Sector – Asia Pacific Ex-Japan Five year performance – 93% Five year performance for the sector – 56.64% Rank with fund sector – 3 of 60 Ecclesiastical Amity International Sector – Global Five year performance – 46.03% Five year performance for the sector – 8.08% Rank with fund sector – 6 of 162 This is not to say that all ethical funds perform well, as many do not. As with any fund there are a wide range of factors influencing performance. Funds that do well often share a number of characteristics, these are typically:
- the headline fund manager has been in post consistently and over a reasonable period of time.
- the parent group is supportive and views this type of investing as part of its overall strategy and the fund has a clear investment style or strategy.
- This is not an exhaustive list of the best ethical funds but it does show the more consistent of the top-tier of funds.
- All funds are Retail OEICs or Unit Trusts and are accessible to UK retail investors.