PEP survey: Moral money making

More and more unit trust PEPs are adhering to ethical codes when they invest.
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The Independent Online
Many people feel uneasy about the manner in which their investments actually deliver a return. The usual concerns centre on where the money is being invested, such as companies that damage the environment, tobacco firms, weapons manufacturers or whether products are tested on animals.

It is often too difficult to ensure that your hard-earned cash is being invested with the best of intentions. Complex legal requirements mean that it can often be hard to find out exactly where all your money is going. Even if you are able to find this information it can be a difficult and time-consuming process to check that each company listed lives up to the required standards. And, even then, can an investor be sure that any particular company does not have links with another firm that may not be as clean as it might be?

Fortunately, many investment companies have reacted to this demand with the launch of a range of ethical unit trust PEPs. This type of fund has become increasingly popular. Ethical funds only invest in firms which adhere to a strict ethical code. They often spend large sums of money looking into the activities of a particular firm for fear of picking one bad apple and alienating thousands of their own investors.

The market in ethical unit trusts is becoming quite large. There are now 24 unit trusts which could be classed as ethical, compared with only 17 just one year ago. The amount of money invested in these funds has grown massively. By the end of last month there was more than pounds 1.5bn invested in ethical unit trusts, compared with under pounds 830m at the same time in 1997.

Most of the ethical funds are now available to PEP investors.

Providers that offer ethical PEPs include such household names as Equitable Life, NPI, Scottish Equitable, Standard Life and Friends Provident. The latter's Stewardship fund is far and away the market leader, with over pounds 440m under management. The Environ unit trust, run by Co-operative Insurance Services, is the only other unit trust with more than pounds 100m of investments.

The ethical funds currently available come in a number of different forms. Some, such as the Stewardship fund, refuse to invest in anything it considers to be unethical while others, such as the Jupiter ecology fund, have a particular focus.

There is also some variation as to how strict a fund's ethical rules are. If you are thinking about investing in such a unit trust, be sure to ask what its exact ethical criteria are to avoid any unpleasant surprises later on. If you are still unsure, the Ethical Investment Research Service (Eiris), a charitable organisation, provides a detailed guide on each of the different funds called Money and Ethics.

The best news is that being ethical does not involve sacrificing performance. For example, over the five years to the beginning of March 1998, the best performing fund, Framlington Health, (while not strictly an ethical fund) recorded a 152 per cent increase in its value. So an investment of pounds 1,000 in that fund in March 1993 would now be worth more than pounds 2,500. This compares with just over pounds 2,250 for the FTSE All Share index and just pounds 1,790 for the average UK unit trust over the same period. Seven of the 17 ethical unit trusts which have been going for five years or more have outperformed the average for all unit trusts.

So if you are considering investing some money but your conscience is stopping you, think again. There may be a way of making your money work for you without investing in armaments, tobacco or environmentally harmful products and services. Invest ethically and you can avoid having sleepless nights worrying about what harm you investment may be doing.

Tony Bonsignore writes for 'Financial Adviser'.

Contact Eiris on 0171-735 1351 for details of its guide.

'The Independent' has also produced a free 'Guide to Ethical Finances', written by Nic Cicutti, this paper's personal finance editor. The guide, sponsored by Friends Provident, explains every aspect of ethical investment, including PEPs. Call 0800 214487, or fill in the coupon on page 9.