Investing ethically pays dividends for savers

Ethical funds are consistently achieving better levels of growth than their non-ethical equivalents according to a study revealed by Moneyfacts today.

The analysis of 140 ethical unit trusts showed ethical funds overall had grown by just over 4% in the past 12-months up to 1 July 2020, compared to a contraction of nearly 1.5% for those investments not in the ethical category. When looking at the levels of growth over the past five years, ethical investments achieved just over 41% compared to those not listed as ethical at nearly 32%.

The study also looked at the performance of ethical investments within the four Investment Association sectors that contain the most ethical funds and identified the top-performing in the past 12 months to be Ethical Global funds. Meanwhile, UK All Companies funds both, ethical and non-ethical, saw a negative performance in the same period with an 8% and just below 13% decline respectively. In fact, during this period, ethical investments in every category achieved positive growth except the UK funds.

Three of the top-performing ethical investments in the past year have been:

• Baillie Gifford Positive Change Accumulation
• LionTrust Sustainable Future Absolute Growth Fund
• FP Carmignac Emerging Markets.

Those considering investing in ethical funds can either seek financial advice or use a fund platform or fund supermarket. Find out more about investing using a fund supermarket in our guide to investment platforms.

Richard Eagling, head of pensions and investments at Moneyfacts, said: “The momentum behind responsible investing has been steadily building for some time, but there is a sense that a raft of new initiatives, changing regulation and some truly impressive sustainable fund performances could prove a catalyst for further growth. The argument that investing responsibly must mean a trade-off between value and values or profits and principles has been increasingly debunked in recent years and the latest results of our ethical fund performance survey provide further clear evidence to refute it. Indeed, for any serious investor, sustainably minded or not, the strong performance of ethical funds is now impossible to ignore.”

Ethical funds invest money into companies that do not cause social or environmental harm, for example ethical funds will not invest in businesses such as weapon manufacturers, oil and mining firms or tobacco companies. These types of funds have been around for many years now, but have become increasingly popular over the last few years.

As we reported last week, with ISA rates continuing to fall during July, savers could consider a stocks and shares ISA as an alternative. A stocks and shares ISA offers the same tax-free benefits as cash ISAs, but have the potential to offer greater returns on investment. Savers considering a stocks and shares ISA should be aware that although they potentially offer more attractive returns than cash ISAs, investing in stocks and shares ISAs also carries greater risk and could result in investors losing the initial capital invested. As well as this, stocks and shares ISAs are generally considered a long-term investment and investors should be prepared to leave their money invested for a minimum of five years.