Ethical Investment Winners and Spinners 2012

Analysis and performance of the ethical investment market.

Our annual ranking of funds represents our view on the best and worst in the ethical and environmental investment sector. The ranking criteria for the funds are based on publicly available data and cover research quality, clarity and transparency of purpose, long-term commitment to the stated aims and fund performance.

Key Points

• Ethical investment is growing exponentially with around £11.2 billion currently under management across 60 ethical and environmental funds.
• Top ethical funds delivered returns of 19.3% over 12 months and 56.8% over 3 years.
• Although ethical funds only represent approximately 1.5% of the total value of managed investments in the UK, early adopters of ethical investing are benefitting from strong returns.

Ethical investment is a fast growing part of the financial services sector that’s thriving and looking to improve standards and make a positive impact. The strong financial returns being delivered by many ethical funds hasn’t gone unnoticed and we’re seeing an increase in enquiries with many savers having lost faith in the activities of the banks and the pitiful savings returns that they offer. Increasingly people are realising that they can invest in something they believe in, as well as making a financial return. We urge people to consider their options and make a ‘conscious’ decision about where to invest their money.

Environmental and Responsible Investment Winners

We recently held an awards presentation for our ethical investment winners.

Triodos Bank

Triodos is an ethical thought leader and continues to make a substantial contribution to the growth of responsible finance in the UK. We’ve selected Triodos for its leadership and innovation, it plans to launch ethically screened managed funds in the UK and the co-ownership concept promoted through depository receipts issued by Triodos. In addition we believe that Triodos communicates very clearly with the broader market as well as its own investors and is something that the rest of the ethical finance sector could learn from.

Cheviot Asset Management – Climate Asset Fund

When it comes to fund performance we have a couple of key funds and are particularly impressed with the way that Cheviot use a multi asset mix to stabilise customer returns. It may surprise those not closely involved with the investment industry, but many investment managers take a fairly ‘relaxed’ approach to market volatility. This means that when markets are headed on a downward trend they will remain fully invested in equities and not seek to curb what at that point may be ‘paper’ losses. We believe that Cheviot has a good understanding of retail private investors in that their fund is designed to meet the needs of many individual investors, because of its yields and income, and is designed to smooth-out market volatility. It achieves this by holding a mixed portfolio of both bonds and equities.

WHEB Asset Management – IM WHEB Sustainability Fund

It would be fair to say that WHEB have been through a very challenging time, in terms of recent fund performance. However we believe that their effective acquisition of the fund management team from Henderson Industries of the Future makes it worthy of recognition. In terms of investable products the company have made one of the most significant commitments in the last 12 months by investing a reported £2 million in building a leading ethical and environmental investment team. Through this major acquisition WHEB have clearly demonstrated their commitment to the market for responsible and sustainable investment making them a leader in the sector and although the new team has only been in place for a short period, early performance figures are encouraging. The team is now made up of Tim Dieppe (20 years investment experience), Seb Beloe (16 years experience as Head of SRI Research at Henderson), George Latham, Clare Brook and Ted Franks – (Associate Fund Manager).

Kames Ethical Cautious Managed – ethically screened for cautious investors

Performance has always been strong at both Kames Ethical Equity and Kames Cautious Managed which is in the top 25% of all funds for its sector over 1, 3 and 5 years. On a pure performance basis Kames have demonstrated an ability to stock pick and add value over a long period of time. Kames offers a range of funds which screen on a negative basis, so while they avoid alcohol, the arms trade and the tobacco industry, they do include industries and activities, for example oil production services, which some ethical investors would struggle to accept.

Environmental and Responsible Investment Spinners

To keep the industry on its toes and ensure consumers get a fair deal, we recognise and celebrate the integrity and performance of the ‘Green Winners’ while also naming the ‘Spinners’ – the funds we feel have room for improvement.

Henderson (for its decision to replace a highly experienced and successful SRI team)

Henderson has for many years had a very strong fund offering for Socially Responsible Investors and had built a large and experienced investment team. In late 2011, they took the decision to remove the existing investment team and replace them with a fund team with no experience of integrating ethical and environmental considerations into their investment process. We believe that this major change to the fundamental nature of the product was not communicated to investors in a way which allowed them to reach a proper decision.

Ecclesiastical Amity International

A widely praised investment fund because of its strong track record on performance, however we are concerned that it presently holds GE, the US Corporate giant, which has a sizeable aeronautics business with ties to the US military – they supply engines for planes and helicopters. The investment is sizeable within the fund at 2% making it a top ten holding on a fund which is frequently referred to as ethically screened in Ecclesiastical’s own literature. Ecclesiastical argues that GE’s business covers a much wider range of activities than just armaments and that they operate a 10% threshold policy whereby provided the activity under scrutiny here accounts for less than 10% of turnover. GE’s armaments business generates around 0.5% of total turnover mostly within its aeronautics division although, given GE’s position as one of the world’s largest businesses, 0.5% equates to about $830,000,000. We were alarmed to discover that ‘ethical’ fund Ecclesiastical Amity International invests into an unscreened Investment Trust which owns tobaccos companies.

Ethical Forestry

Another area that concerns us is the growth of unauthorised investment schemes, especially in forestry, which are marketed as ethical. There are a number of examples in the market place but Ethical Forestry is one of the worst. Investors need to be very wary of schemes of this type as the website and marketing literature boast of secure high returns with no risk warnings at all. Additionally the product is described as ‘SIPP approved’ when there is no such thing as ‘SIPP approved’ and many SIPPs reject the scheme. Ethical Forestry is not FSA regulated or authorised so investor protection is very low. There is also no track-record or real evidence to support claims made on the website.

F&C Stewardship Fund

There have been recent moves from F&C which investors may not be aware of or be comfortable with. These include changing its screening criteria and now investing in tar sands and fur (via Burberry). It’s very disappointing to find an organisation that hitherto has been a leader is broadening its criteria to include companies engaging in environmentally destructive actions.