20 pledges for 2020: Kames Ethical Equity fund can deliver despite strict screening

Hargreaves Lansdown's Emma Wall says the fund manager has been committed to ethical investment long term. Its Ehtical Equity fund has delivered despite its "dark green" stance

Audrey Ryan manages Kames Capital's Ethical Equity fund. It excludes tobacco, pornography, oil and gas, GM, nuclear power, gambling, environmentally damaging and poor animal welfare stocks

This column is all about making ethical investment - which you’ll these days more often find badged as ESG for Environmental, Social, Governance - easier.

To that end, I’ve called upon the help of another expert to highlight a fund for readers interested in the field to run the slide rule over.

Hargreaves Lansdown’s head of investment analysis Emma Wall has a longstanding interest in the sector.

There’s one thing in common between her choice and that of rival broker BestInvest last time around: Both have chosen to focus on funds run by managers which have been in the field for a while and were demonstrating a commitment to it before it became fashionable (as it is now).

Wall’s choice: Kames Capital and its Ethical Equity fund.

This is another dark green fund, meaning that it’s positioned at the stricter end of the screening scale when it comes to the companies in which it will invest, and is therefore suitable for people with more demanding criteria.

“Kames is one of the few houses that has been doing responsible investing for decades – there no fear of green-washing with this fund,” Wall says.

“Kames first launched the fund in 1989 and regularly cleans up at sustainable investing awards.

“It is dark green in old terminology, meaning it is exclusionary, investing in no tobacco, pornography, oil and gas, GM, nuclear power, gambling, environmentally damaging and poor animal welfare stocks. There are also controversy considerations in the investment process too.”

This, obviously, thins the investment field by a considerable amount. Wall is nonetheless impressed with the returns the fund has been able to generate, although as always when discussing past performance one has to stress that it isn’t necessarily a guide to the future.

“Reducing the investable universe by 50 per cent hasn’t held the performance back. The fund has delivered 25 per cent to investors over the past five years against a challenging backdrop – it invests in UK equities, all which have borne the brunt of Brexit uncertainty, regardless of ethical credentials.

“The fund skews towards small and mid-cap stocks, where the manager Audrey Ryan believes she can add most value through her stock picking.”

Wall does highlight one potential issue for investors to consider, particularly in the midst of the current stock market volatility. She explains: “Screening out sectors such as tobacco, which have traditionally had defensive qualities, does mean that the fund can fall further in a downturn.”

However investors in equities need to look long and this fund, she says is “a good option for investors looking to do good and make money” over that time horizon.

Regular readers should by now be well aware that those two things aren’t mutually exclusive.