- Good Money Week begins on Saturday 29th September
- Ethical indices have beat their non-ethical peers over 10 years
- Willis Owen shares ethical investment ideas and fund picks
This weekend sees the start of the Good Money Week (29th September to 6th October) which looks to promote sustainable responsible and ethical investing. The campaign is in its’ 11th year.
The UK’s retail ethical investment industry launched in 1984 but recent statistics from the Investment Association show funds with ‘ethical’ mandates now total just £16.7 billion of total assets under management (representing 1.3% of total industry assets, up marginally from the 1.2% in 2017.) These figures suggest that the sector has consistently failed to increase its weighting over the years.*
However, according to the latest statistics, leading ethical indices have beaten their non-ethical peers over 10 years. In the UK, the FTSE4Good UK index beat the FTSE All Share Index, returning 107.23% versus 105.5% over 10 years to 20th September 2018. Equally, in the US, the FTSE4Good US Index returned 204.24% compared to 162.92% for the S&P 500 over 10 years to 20th September 2018.
Adrian Lowcock, Head of Personal Investing, Willis Owen, says:
“Fortunately, ethical investing is no longer a trade-off between returns and principles. In fact, the performance of ethical benchmarks over the last 10 years has been better than non-ethical counterparts. Much of this has been driven by the performance of oil and mining sectors which have lagged the market over the past ten years as well as, more recently the Tobacco sectors. Many ethical funds have no exposure to these areas and have therefore protected investors from the falls.”
“Additionally, ethical funds have benefitted from the outperformance of smaller and mid-sized companies. As a result of these filters, ethical funds usually have a bias away from large companies which has also helped performance.”
“The larger gap for the US market can be explained by a strong performance in the technology sector in recent years, whilst the energy sector has been volatile following a collapse in the oil price in 2015/2016 which severely impacted the market.”
“Whilst the uptake of specific ethical funds remains low, the overall sector has evolved significantly over the past 30 years. Investors no longer have to avoid certain types of companies or accept a lower rate of return because of their morals. The evidence is growing that companies which behave responsibly and incorporate Environmental, Social and Governance principles into their businesses are better custodians of those companies and in turn provide better long term returns for investors.”
Willis Owen’s ethical investment ideas
Kames Ethical Cautious Managed
- This fund, managed by experienced ethical investors Audrey Ryan and Iain Buckle invests in UK shares and bonds. It applies a strict ethical filter to its investment process which excludes mining and energy stocks, tobacco and banks with investment banking operations. The fund also excludes government gilts on the bond side which result in a very different fund to many peers. The fund tends to have a bias towards mid and smaller companies as well as favouring cyclical stocks. The team focus on a combination of stock selection and wider economic analysis to generate ideas and construct a portfolio of investments.
Stewart Investors Worldwide Sustainability
- The fund invests in global equities and would suit as a core invest or someone seeking to build a sustainably focused portfolio. The investment process will take account of sustainability themes and issues and requires positive engagement with companies in respect of these. The manager David Gait focuses on stock selection and conducts thorough fundamental analysis with a heavy focus on the sustainability of earnings and business models. There is a preference for high-calibre management in franchise companies backed by healthy balance sheets. The price they pay for a business is important, but a company’s quality aspects are the priority.