Do-gooders do nicely

Ethical funds can offer the shrewd investor guilt-free profits.

Making money while doing good sounds like a standard plank in New Labour's manifesto. When it comes to investment, however, things are not quite so simple, and sifting through company accounts to decipher whether or not a particular blue chip is guilty of exploiting Third World labour or is party to the production of greenhouse gases is likely to prove a complicated and time-consuming task.

According to a survey by Friends Provident, out of a total UK unit trust industry worth pounds 120bn, only around pounds lbn is invested in ethical funds. Lee Coates, director of the financial advisers Ethical Investment, has no doubt as to the reason: "It is the insurance industry which is most to blame." he says. "With the exception of Abbey Life, which has its own ethical fund, most direct-sales forces have no ethical products to sell."

He also worries that many independent financial advisers (IFAs) have insufficient product knowledge. "What we have discovered from our own clients is that many IFAs simply don't ask potential investors whether they are interested in ethical investment. It's not that their commissions are any less, it is just that many are unaware of the products on offer."

There is perhaps another reason why, in the caring, sharing 1990s, ethical funds have not achieved a greater share of the market and that is the widely held belief that such funds underperform. Such a belief is seriously misguided.

Performance figures for all UK equity pension funds over the last year show that ethical funds take seventh, ninth and 11th spots; there are only six ethical funds in the sector and all are in the top 31 out of a total of 210 funds. A similar picture emerges in the UK equity growth sector over the past 12 months. Credit Suisse's Fellowship Trust ranks fifth out of 165 funds and the worst performing ethical fund is in 26th place.

Given the relatively small number of funds that describe themselves as ethical - there are around 27 unit trusts and three investment trusts - these are extraordinary figures. So what lies behind the success?

One reason is that ethical funds are severely restricted in the number of companies they may invest in. Although most funds will retain some blue chip "leaders", the vast majority of FT-SE 100 companies will be out of bounds. Multinationals are usually so diversified that the chances of them breaching at least one of the investment restrictions set down by the ethical funds' trustees are that much greater. ICI, BP and Shell will not feature on any ethical funds' buy lists because of their questionable pollution records.

Such restrictions appear, however, to help rather than hinder performance. "In many ways, having less stocks to choose from makes life a lot easier," says Richard Lowman, fund director at Friends Provident's Stewardship Trust, the oldest and largest ethical fund. "We can focus our attention on fewer companies and get to know the board a lot better."

Another reason put forward to explain the recent outperformance is that by investing in companies which already have paid the price of putting green policies in place, they are buying nearer the bottom of the market.

Stewart Morgan, of the independent financial advisers Chase de Vere, has undertaken research into ethical funds and believes there is a case for ethical investment even for those who might not see themselves as necessarily "ethical" investors. "I would not advise anyone to invest all their money into ethical funds. However, in a diversified portfolio, there is a case for investing in ethical funds from a purely financial viewpoint."

The investment policies of the various ethical funds differ greatly. Anecdotal evidence suggests that many investors buy into ethical funds believing they are doing their bit for the environment when in fact the fund may be more concerned with avoiding investment in companies involved with gambling or the sale of alcohol. As Mr Morgan explains: "The moment a client tells me what they don't want to invest in, that usually knocks out 80 per cent of the choice anyway."

The Ethical Investment Research Service (EIRIS), which helps ethical fund managers to decide which companies are acceptable investments, produces a guide, "Money & Ethics", which lists all ethical investment plans currently available along with detailed information about the investment policies of each of the funds. Sensitive investment areas are divided into 24 categories. These range from intensive farming and pesticide production to pornography and nuclear power.

Chase de Vere (0800 526 091), Ethical Investors (01242 604550), 'Money & Ethics' is available from EIRIS, Bondway Business Centre, 71 Bondway, London SW8 1SQ, price pounds 12.50.

A scene from the video shows students mock rioting
newsEpic YouTube video features boundary-pushing staging of a playground gun massacre
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
Arts and Entertainment
The cast of The Big Bang Theory in a still from the show
tvBig Bang Theory filming delayed by contract dispute over actors' pay
Have you tried new the Independent Digital Edition apps?
England celebrate a wicket for Moeen Ali
sportMoeen Ali stars with five wickets as Cook's men level India series
Morrissey pictured in 2013
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Robyn Lawley
i100  ... he was into holy war way before it was on trend
Arts and Entertainment
High-flyer: Chris Pratt in 'Guardians of the Galaxy'
filmThe film is surprisingly witty, but could do with taking itself more seriously, says Geoffrey Macnab
Life and Style
food + drinkVegetarians enjoy food as much as anyone else, writes Susan Elkin
Finacial products from our partners
Property search
Sell it with flowers: competition is 'intense' for homes with outside spaces

Gardens add a tenth to the value of your home

A London estate agent yesterday put a price on having a garden. David Pollock of Greene & Co reckons it can increase a property's value by a tenth.

Spectators at the Isle of Wight music festival watch the World Cup on the big screen. Betting promotions were a feature of the tournament
Lenders have been accused of persuading vulnerable people to borrow expensive credit

Payday loan firms accused of bombarding vulnerable people with nuisance phone calls

Payday loan firms have been accused of bombarding financially vulnerable people with nuisance phone calls, after a debt charity reported that a third of its clients were plagued by the messages.

The foundation proposed that the Government sets up a scheme to help people avoid losing their homes

Mortgages: 'Homeowners could trade down to shared ownership to defuse rate rise timebomb'

A plan to defuse a “mortgage debt timebomb” when interest rates rise is published today amid warnings that 2.3m households could struggle with their repayments.

Current accounts are too costly and confusing, says CMA as it announces investigation into Britain's biggest banks

Competition regulator to investigate market where it's hard for customers to make comparisons and the big banks' charges can be set too high
All the signs have been pointing up for buy-to-let, but there are clouds on the horizon

Buy-to-let: is it a boom or a bubble fit to burst?

People borrowing to be landlords could face the same restrictions as homebuyers, with MPs voicing fears that property speculation may be overheating the market

Moment of truth for payday lenders: Watchdog plans to curb cost of short-term loans

The chief of the City watchdog, Martin Wheatley, spoke exclusively to The Independent's Simon Read about its attempts to control the worst excesses of unscrupulous high-cost credit companies

Consumers given power to choose a green deal

How would you like to be able to choose how your electricity is made and even where it come from? It may sound futuristic and fanciful but the independent supplier Co-operative Energy has made it a reality this week.

'Scrap the trap': calls for change grow as banks are told to play fair with loyal savers

City regulator says existing customers suffer worst rates

Motor insurers divided on proposals for whiplash ban

MPs want medical evidence for claims. Will this bring higher premiums?

British Gas repays £1m for mis-sold deals

British Gas was yesterday forced to pay back £1m to its customers after mis-selling them energy deals.

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    1st Line Support Technician / Application Support

    £20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

    Team Secretary - (Client Development/Sales Team) - Wimbledon

    £28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

    Accountant / Assistant Management Accountant

    Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

    Senior Investment Accounting Change Manager

    £600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

    Day In a Page

    Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

    The day America’s love of backyard tigers led to a horrific bloodbath

    With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
    Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

    How Samuel Beckett became a French Resistance spy

    As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
    We will remember them: relatives still honour those who fought in the Great War

    We will remember them

    Relatives still honour those who fought in the Great War
    Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

    Kodak's last-ditch bid to keep celluloid alive

    Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
    Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

    Acting in video games gets a makeover

    David Crookes meets two of the genre's most popular voices
    Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

    Could smartphones soon be diagnosing diseases?

    Health Kit and Google Fit have been described as "the beginning of a health revolution"
    Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

    Can we learn to love Ryanair again?

    Four recent travellers give their verdicts on the carrier's improved customer service
    Billionaire founder of Spanx launches range of jeans that offers

    Spanx launches range of jeans

    The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
    10 best over-ear headphones

    Aural pleasure: 10 best over-ear headphones

    Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
    Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

    Commonwealth Games

    David Millar ready to serve up gold for his beloved Scotland in the end
    UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

    UCI Mountain Bike World Cup

    Downhill all the way to the top for the Atherton siblings
    Save the tiger: The animals bred for bones on China’s tiger farms

    The animals bred for bones on China’s tiger farms

    The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
    A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

    A former custard factory, a Midlands bog and a Leeds cemetery

    Introducing the top 50 hidden spots in Britain
    Ebola epidemic: Plagued by fear

    Ebola epidemic: Plagued by fear

    How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
    Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

    From 'Parks and Recreation' to 'Guardians of the Galaxy'

    He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star