Do-gooders do nicely
Ethical funds can offer the shrewd investor guilt-free profits.
Wednesday 15 May 1996
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.
It scooped up an unprecedented 11 Academy Awards when it was first remade in 1959
Olympic diver has made his modelling debut for Adidas
Actors star in Woody Allen's 'Magic in the Moonlight'
Revellers will have to pay to see New Year's Eve fireworks in London
...and the perfect time to visit them
Newcastle winger reveals he has testicular cancer - and is losing his trademark long hair as a result
Man's attempt to avoid being impounded heavily criticised
05 September 2014 11:30 PM
30 August 2014 12:00 AM
30 August 2014 12:00 AM
The UK has slipped to 11th in the latest European league table of savers. Rob Griffin checks out the best options
22 August 2014 10:30 PM
Caroline Flint, the shadow energy secretary, says a Labour government would create a new energy regulator
22 August 2014 10:30 PM
16 August 2014 12:00 AM
16 August 2014 12:00 AM
08 August 2014 11:30 PM
- 1 iPhone 6 review: bigger, thinner, faster, brighter - Apple proves you can make the best better
- 2 Sports Direct security guard allegedly banned Jewish schoolboys and told them: 'No Jews, no Jews'
- 3 Watch a man race the Circle line - and win
- 4 Pakistani passenger power forces two politicians off plane
- 5 Kanye West halts concert after two fans don't stand up - doesn't realise one is in wheelchair and the other disabled
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
Scottish independence referendum: A nation divided against itself
The political class is doing what Hitler couldn’t – destroying Britain
Scottish independence: Nationalist leader Jim Sillars threatens pro-union companies with 'day of reckoning' after independence
Scottish independence: Yes campaign feels the heat as Alex Salmond's NHS claims come under furious attack
Portuguese academic says British are 'filthy, violent and drunk'
iJobs Money & Business
£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...
£20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...
£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...
£20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...
Day In a Page
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony