PEPS: Money and morals can mix

Ethical PEPs allow you to align principles with profit, says Tony Lyons
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The Independent Online
If you are an investor with a conscience wanting to take maximum advantage of the tax benefits available, consider in-vesting in an ethical PEP or ISA. You should make money over the long term without going against your principles.

An ethical fund is a unit or investment trust run so that it only invests in companies meeting the fund's specific criteria, usually set out in a mission statement. These vary from fund to fund but there are some common areas. For example, nearly all funds avoid companies involved in the arms trade or the tobacco industry.

Most of the funds making up the ethical investment sector fully qualify for inclusion in a PEP. So you can invest up to the full pounds 6,000 PEP allowance before the end of the tax year.

"During the past couple of years a handful of big companies have been outperforming the rest of the market," says David Mott of CIS Unit Managers, which runs the CIS Environ fund. "Many of them are barred to us. Although we take a pragmatic approach, and some ethical funds have more relaxed criteria than others, we do find we are largely invested in small and medium-sized companies - sectors that have lagged behind. But for those ethical funds that have been around for some time, the average performance has been the same as for other unit trusts."

There are 28 ethical unit trusts and two investment trusts - the latter from Friends Provident and Jupiter - controlling funds valued at almost pounds 2bn. In the UK the major impetus for ethical investment was supplied by the anti-apartheid movement in the 1980s. The Friends Provident Stewardship fund was launched in 1984, the year after the Ethical Investment Research Service (Eiris) was founded by a group of churches and charities to provide research into corporate behaviour.

Today Eiris advises many of the ethical funds on public companies' activities. It also assists private investors.

As well as detailing negative investment criteria - companies you should avoid - some funds work to "positive" criteria. They might invest in companies offering their workforce good pay and conditions, especially in the Third World, or firms with environmental protection policies.

"There is a good choice of funds for investors looking for long-term growth, much less if they are looking for income," says Bridig Benson, of Global Ethical Investment Advice, a firm of independent financial advisers (IFAs). "We pay attention to clients' key interests as well as their attitude to risk and their time frame. I have to know what they want to avoid."

If you want to buy a PEP or ISA without paying an adviser to help you select a fund, you can go to a discount broker and save at least 3 per cent on the initial charges. CIS Environ can only be bought through members of the CIS sales force.

n IFA Holden Meehan has produced a free `Guide to Ethical and Environmental Investment'. Tel: 0800 7314505.

Eiris will send you a list of 70 independent financial advisers specialising in the ethical sector. Call 0845 606 0324.

Contacts: CIS Environ, 0161 837 5060; PEP Direct, 0800 413186; PEP Shop, 0115 982 5105; Financial Discounts Direct, 0500 498477.


Bridig Benson at Global Ethical Investment Advice:

n NPI Global Care range: "NPI has the best ethical research unit among fund managers."

n Friends Provident Stewardship: "A good solid fund that has recently reinforced its management team."

n Jupiter Ecology: "A fund that has taken a creative stance and has a solid performance record. Also, investors can use other Jupiter funds in their PEP, such as its top-performing income funds."

Richard Hunter of Holden Meehan:

n NPI Social Index Tracker: "A fund that will buy into blue- chip companies that are the best in their various sectors."

n Henderson Ethical: "Kate Murphy, the fund manager, is really on the ball."