Investors Continue To Reap Returns With Ethical Funds | moneyfacts.co.uk

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Derin Clark

Derin Clark

Online Reporter
Published: 26/07/2021

Ethical funds have outperformed non-ethical funds over the past 12 months, which combined with the growing concern about climate change and a heightened focus on companies being socially conscious, makes ethical funds increasing attractive to investors.

In fact, ethical funds overall returned 19.87% over the past year, which compares to the 17.89% return from non-ethical funds. “The assumption that choosing an ethical fund can mean a sacrifice in return versus non-ethical is untrue and has been so for many years,” explained Rachel Springall, finance expert at Moneyfacts.co.uk. “Ethical funds have outperformed non-ethical in 13 out of 23 sectors based on the latest one-year performance figures. If we travel back to 2020, overall, the non-ethical sector returned a loss of 1.46% and ethical returned a profit of 4.29% over one year. In contrast, both the overall ethical and non-ethical sectors returned growth over the past year of 19.87% and 17.89%. Whilst past performance cannot guarantee future growth, it is still encouraging to witness the resilience of ethical funds.”

She added: “In the months to come consumers looking to invest or review existing fund selections would be wise to seek advice and keep in mind past performance is not guaranteed for the future. However, as our analysis shows, ethical funds have surpassed non-ethical over the past couple of years and this may not just entice those keen to invest more responsibly but also those chasing good returns.”

Although ethical funds have been performing well, some investors not naturally interested in ethical investing may still be cautious about investing in ethical funds. Joshua Hewitt, charter financial planner at Kellands, said: “Although clients may not initiate the conversation around sustainable investing, we find that the vast majority are open to consider the options available to them. Clients who may not have deep rooted conviction to invest in a sustainable manner are more and more willing to consider their opportunities, and although it may not be suitable for them to invest their full portfolio into ESG funds, we are finding that they are wishing to ‘test the water’ and increase the diversification of their portfolios by adding an element of ESG investments.”

Risks of ethical funds

With a growing interest in climate change and consumers becoming more socially conscious, investing in ethical funds could become more popular over the coming years. As the market grows it could result in less profitable and risker investments entering the market, along with an over saturation of the market. As such, consumers considering investing in ethical funds should be wary about which investments they choose and may want to consider using an investment platform to make it easier to diversify and manage their investments. As well as this, investors should always keep in mind that ethical investments carry the same risk as all investments in that there is no guarantee of returns on investments and investors could, in some cases, lose all their capital including their initial deposit.

Who should consider an ethical investment?

Although ethical investments carry risks, they could be a good investment opportunity for a wide range of investors. Those already with investments, for example, may find that they get better returns diversifying their portfolio with ethical investments. Alternately, those saving towards retirement may want to consider investing part of their pensions in ethical funds.

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