Ethical Funds Come Off The Boil Over One Year | moneyfacts.co.uk

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Rachel Springall

Rachel Springall

Finance Expert & Press Officer
Published: 28/02/2022

Ethical funds have fallen short of their non-ethical rivals over the last 12 months of turbulent stock markets, new data from Moneyfacts.co.uk reveals.

The research shows that ethical funds returned an average 3.97% over the past year, compared to 6.06% from their counterparts investing in ‘sin stocks’. This could be just a blip, however, as ethical funds have outperformed non-ethical competitors over every other timescale. In fact, over three-, five-, 10- and 15-year periods, ethical funds outperformed by a significant margin. This lends weight to the argument, backed by a number of studies, that sustainable companies perform better.

 

Global ethical funds lag

Looking at the performance of different funds within Investment Association fund sectors, we can see that ethical corporate bond funds suffered a less significant fall than their non-ethical counterparts, down just under 3% versus just under 4%. Mixed investment ethical funds lagged non-ethical mixed investment funds by one percentage point, while global ethical funds underperformed sharply to return 2.57% on average compared to 9.54% from non-ethical global portfolios. Within UK all companies funds, too, ethical funds fell short to return 8.58% versus 14.23%.

Appetite for responsible investment funds soared during the pandemic, with investors pouring a record £16bn into these products in 2021, marking an increase of £4.3bn on the previous year. The publicity around the COP26 and climate change will have helped drive investor demand for green and ethical investments.

While this short-term performance might be disappointing, investors should keep in the mind the previous resilience of ethical funds, and remember that no-one knows what will happen in markets this year, as geopolitical events destabilise stocks.

Resilient sectors

“Fund past performance cannot of course guarantee future growth, and as 2022 has already demonstrated its potential for stock market volatility, it will be interesting to see how funds will perform moving forward,” says Rachel Springall, finance expert at Moneyfacts.co.uk.

“Throughout the pandemic, some fund sectors have been more resilient than others, and the past year has been no exception. There were 19 sectors for ethical funds producing positive average growth out of 26 comparable sectors, compared to 18 sectors for non-ethical funds, based on the past years’ Lipper IM data. This will be positive news for investors who are seeking out funds meeting Environmental, Social, and Governance (ESG) criteria, and during 2021 there was continued evidence of demand for responsible investment funds,” adds Springall.

“The outlook for the stock market is uncertain, so any concerned investors would be wise to seek advice before switching out of any fund sector, as a jumpy premature move may result in missing out on potential recovery. Good advice is essential to any investor to get some peace of mind, particularly at a time when the markets are volatile.”

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