Why 'moral' investing is a broad church

Sam Dunn asks how much profit you will sacrifice on the altar of an ethical stance

Belief in God is good for your wealth as well as your soul. So says the Ave Maria fund, a US investment firm whose morally conservative stance for its savers is to shun any company that it says breaks the Catholic Church's core teachings.

Its views are resolutely right wing. It screens out publicly listed US companies that offer work benefits to non-married partners (whether same or opposite sex), support the contraception industry or have commercial links to abortion or pornography.

This stance has served it well so far, says Ave Maria investment manager Bob Schwartz. "People coming to our funds are looking for the moral high ground, to have their faith and investments on the same level. In the past three years, our fund has risen by 35 per cent, compared with a 5 per cent fall in the S&P 500 [a US stock market index]."

The fund has some 2,500 investors - not just Catholics. Two of its top stocks this January were Harley-Davidson, the Hells Angels' favourite motorcycle-maker, and oil giant Exxon-Mobil. It has blacklisted more than 400 companies, including Sears Roebuck, the department store, after it began offering staff partner benefits to unmarried employees last year.

Plenty of other funds are taking a moral stance - or not, as the case may be. At one end of the spectrum are those that back "green" companies engaged in protecting the environment, and at the other are those that invest in "sin" sectors such as tobacco, alcohol and gambling.

One successful "vice" fund was launched in the US in 2002 and prompted Willis Owen, a UK investment management company, to announce plans for a similar venture last year.

Although its launch has been postponed, spokeswoman Kerry Nelson says shares in such a fund will always be in demand "regardless of any economic climate" because of the products' addictive nature. For example, tobacco stocks such as BAT and Imperial have long boosted investment funds thanks to robust performance throughout stock market volatility.

This highlights a dilemma for ethical investors: do your beliefs mean you have to sacrifice performance?

"Green" ethical funds in the UK - those avoiding companies that harm the environment or damage people's health - have been dogged by accusations of weak performance. As in all sectors, you will find funds that "shoot the lights out" and others that crawl along the floor, but there is a particular price to pay for avoiding financially successful stocks on moral grounds, says Meera Patel, a senior analyst at independent financial adviser (IFA) Hargreaves Lansdown.

"Ethical investors have to be prepared for performance that isn't going to match investing across the whole of the market," she warns. "You limit yourself because 'being green' does sieve out potentially good-performing companies. Being green and ecologically minded can be more costly for you."

The performance of ethical funds in the UK is "uninspiring" she says, with one exception; Isis Stewardship.

Overall, though, figures from S&P reveal that ethical and ecological funds have not been woeful underachievers. Over the three years ending 19 April 2004, the average sector fund shrank by 17.3 per cent compared with a smaller 13.3 per cent slump in the UK All Companies index and 17.1 per cent in the Far East excluding Japan.

Over the past year, the average ethical fund is up 18.3 per cent, against 37 per cent for the Far East ex Japan and 22.9 per cent in the UK All Companies index.

Scott McAusland, a spokesman for the Ethical Investment Research Service (Eiris), says: "We are happy there are funds that can provide decent returns, although during the last couple of years, for example, military stocks have done really well and most ethical funds won't touch them. But [performance] is not the main reason for people to [buy into these funds]; they do so for their principles."

With some £4.2bn currently under management in ethical UK funds - the highest level since early 2001 - Eiris says moral investing is growing in popularity. Its view is echoed by Amanda Davidson, a partner at IFA Charcol Holden Meehan: "If your principles are important to you, you should invest in just ethical funds. There is enough choice out there."

Alternatively, she says, "if you are not that bothered, just go for the 'all out' [performance] funds and give the cheque to charity."

Ms Davidson concedes that the limited range of companies means "you may miss out on some performance", but she stresses that it can work both ways. For example, your returns might have rocketed if an ethical fund manager had been an early investor in wind power companies, which have benefited from the Government's commitment to clean energy.

If you are interested in getting some ethical, or even "unethical", investments into your portfolio, the websites listed below are a good place to start. Alternatively, contact an IFA, who will be able to explain the difference between the funds available. These range from "dark green" - investing in companies that actively pursue environmentally friendly policies - to "light green" - businesses that simply avoid damaging the environment.

Contacts: www.eiris.org.uk, www.vicefund.com. Call 0800 731 4505 for a free guide to ethical investing from Charcol Holden Meehan

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Talent Acquisition Consultant

    £22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

    Recruitment Genius: Experienced Financial Advisers and Paraplanners

    Negotiable: Recruitment Genius: This extremely successful and well-established...

    Guru Careers: FX Trader / Risk Manager

    Competitive with monthly bonus: Guru Careers: We are seeking an experienced FX...

    Guru Careers: Investment Writer / Stock Picker

    Competitive (Freelance) : Guru Careers: An Investment Writer / Stock Picker is...

    Day In a Page

    How to stop an asteroid hitting Earth: Would people co-operate to face down a global peril?

    How to stop an asteroid hitting Earth

    Would people cooperate to face a global peril?
    Just one day to find €1.6bn: Greece edges nearer euro exit

    One day to find €1.6bn

    Greece is edging inexorably towards an exit from the euro
    New 'Iron Man' augmented reality technology could help surgeons and firefighters, say scientists

    'Iron Man' augmented reality technology could become reality

    Holographic projections would provide extra information on objects in a person's visual field in real time
    Sugary drinks 'are killing 184,000 adults around the world every year'

    Sugary drinks are killing 184,000 adults around the world every year

    The drinks that should be eliminated from people's diets
    Pride of Place: Historians map out untold LGBT histories of locations throughout UK

    Historians map out untold LGBT histories

    Public are being asked to help improve the map
    Lionel, Patti, Burt and The Who rock Glasto

    Lionel, Patti, Burt and The Who rock Glasto

    This was the year of 24-carat Golden Oldies
    Paris Fashion Week

    Paris Fashion Week

    Thom Browne's scarecrows offer a rare beacon in commercial offerings
    A year of the caliphate:

    Isis, a year of the caliphate

    Who can defeat the so-called 'Islamic State' – and how?
    Marks and Spencer: Can a new team of designers put the spark back into the high-street brand?

    Marks and Spencer

    Can a new team of designers put the spark back into the high-street brand?
    'We haven't invaded France': Italy's Prime Minister 'reclaims' Europe's highest peak

    'We haven't invaded France'

    Italy's Prime Minister 'reclaims' Europe's highest peak
    Isis in Kobani: Why we ignore the worst of the massacres

    Why do we ignore the worst of the massacres?

    The West’s determination not to offend its Sunni allies helps Isis and puts us all at risk, says Patrick Cockburn
    7/7 bombings 10 years on: Four emergency workers who saved lives recall the shocking day that 52 people were killed

    Remembering 7/7 ten years on

    Four emergency workers recall their memories of that day – and reveal how it's affected them ever since
    Humans: Are the scientists developing robots in danger of replicating the hit Channel 4 drama?

    They’re here to help

    We want robots to do our drudge work, and to look enough like us for comfort. But are the scientists developing artificial intelligence in danger of replicating the TV drama Humans?
    Time to lay these myths about the Deep South to rest

    Time to lay these myths about the Deep South to rest

    'Heritage' is a loaded word in the Dixie, but the Charleston killings show how dangerous it is to cling to a deadly past, says Rupert Cornwell
    What exactly does 'one' mean? Court of Appeal passes judgement on thorny mathematical issue

    What exactly does 'one' mean?

    Court of Appeal passes judgement on thorny mathematical issue