The latest survey from Moneyfacts suggests that, given the continued strong performance of many ethical funds, they should be more popular than they are – is it time to add these funds to your portfolio?
Environmental, social and sustainability-related issues are becoming increasingly important for many of us, with such concerns often influencing our buying decisions and general behaviour. As such, it was widely expected that socially responsible investing (SRI) would begin to gain a wider audience, but surprisingly, it remains a relatively small segment of the overall fund market.
This is even more surprising considering the performance of ethical funds. Our latest figures show that ethical funds have outperformed their mainstream peers in 13 of the 20 scenarios surveyed, so there's clearly scope for more people to consider them.
The results of the survey, which looked at the performance of ethical funds versus conventional non-ethical funds over a number of investment periods, and also compared ethical funds within four key Investment Association sectors, can be seen below.
|1 year||3 years||5 years||10 years|
|All ethical funds||16.81%||30.42%||76.17%||75.83%|
|All non-ethical funds||15.20%||29.13%||64.14%||83.03%|
|IA Sector performances|
|Ethical £Corporate Bond funds||5.23%||18.81%||37.23%||68.93%|
|Non-ethical £Corporate Bond funds||4.96%||17.90%||33.82%||68.98%|
|Ethical Mixed Investment 40-85% funds||15.79%||34.38%||84.61%||76.56%|
|Non-ethical Mixed Investment 40-85% funds||14.61%||26.17%||58.28%||68.61%|
|Ethical Global funds||19.68%||40.76%||88.99%||87.90%|
|Non-ethical Global funds||21.47%||46.94%||97.27%||102.99%|
|Ethical UK All Companies funds||19.87%||26.00%||79.19%||64.29%|
|Non-ethical UK All Companies funds||19.79%||24.50%||76.89%||79.13%|
|Source: Moneyfacts/ Lipper Investment Management. % Growth as at 1 July 2017, total return, UK net, no initial charges.|
The results show that, over the past year, ethical funds have had the edge over their traditional counterparts, posting an average growth of 16.8% compared with 15.2% from the average non-ethical fund. Some of the top funds over the period include The EdenTree Amity European Fund (33.4%), Unicorn UK Ethical Income (32.4%) and Standard Life Investments UK Ethical (30.8%).
The average ethical fund (30.4%) has also eclipsed the average non-ethical fund (29.1%) over three years – five ethical and SRI funds have posted growth of over 50%, with F&C Responsible Global Equity (58.4%) the standout performer – but it is over five years that ethical funds have truly excelled, with the average ethical fund returning 76.1%, well above the average non-ethical fund return of 64.1%.
The growth of the three best ethical/SRI funds - EdenTree Amity European (122%), Liontrust Sustainable Future Absolute Growth (115%) and Henderson Global Care Growth (113%) – over this period is even more impressive. It's only when looking over 10 years that mainstream funds (83%) remain ahead of ethical funds (75.8%), but even so, the margin is relatively small.
The competitive returns delivered by ethical funds are also evident when looking at how they have fared within the four Investment Association sectors that house the most ethical funds: in the Mixed Investment 40-85% Shares sector, ethical funds have outperformed non-ethical funds over all surveyed terms (one, three, five and 10 years), and it's a similar picture in the £ Corporate Bond and UK All Companies sectors, where the average ethical fund is only beaten by traditional funds over 10 years.
Things are slightly less flattering in the Global Sector, with non-ethical funds dominating in each of the surveyed terms, but for the most part, ethical investing clearly wins the day.
"With every passing year, the traditional view that investing ethically entails sacrificing profits looks increasingly outdated," said Richard Eagling, head of Pensions and Investments at moneyfacts.co.uk. "In our latest survey, ethical funds have more than held their own."
This shows that "sustainable practices and good governance can give companies a competitive advantage," added Richard, but it's good for investors, too: as well as generating strong returns, ethical and SRI funds can also help investors mitigate risk, so it's a win-win situation.
"Given the strong performance of many ethical funds and the feel-good factor associated with investing with principles, the retail SRI fund sector should have a bigger following," concluded Richard. "It is disappointing that in the 33 years since the first ethical fund was launched, ethical funds still only account for 1.2% of the total assets under management across the entire retail fund universe."
Given such strong performance of ethical funds, now could be a great time to get in on the action. Make sure to consider such funds when making your investment decisions - including when opening an investment ISA - and always seek professional financial advice to make sure that investing is right for you.
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