2nd November 2015 at 12:52pm
Many people believe that when they are ethically investing they will sacrifice returns but, in this video Gareth Trainor explains that investments with an ethical or socially responsible bias in the UK market consistently perform well.
Can you invest in ethical funds without sacrificing returns?
Figures from Morningstar show that investments with an ethical or socially responsible bias in the UK market have on average outperformed by over 8%* during the last five years. But research tells us that people still believe that they will sacrifice returns if they invest ethically. So what’s going on behind these impressive numbers?
Evolution of ethical funds
Green, ethical, SRI, ESG and beyond, the values-based investment world has moved on and is now a much more progressive and active environment. These days, strict negative screens are being augmented with positive criteria and ‘best of sector’ type approaches to reflect the changing attitudes and demand from values-based investors.
But it’s not just the fund managers that are evolving. The companies which the funds invest in are more often doing things the right way as well. Increasingly companies are taking heed of growing investor influence and operating in a more sustainable way – and are benefitting accordingly.
When you invest in a way that applies specific values to an investment universe, inevitably there will be things you don’t want to invest in. Sometimes these are individual companies, sometimes large parts of entire sub-sectors. This means that when the areas excluded do badly, the ethical-type funds will do well, and vice versa.
For example, the recent falls in the oil price and other natural resources have meant ethical funds – which don’t tend to have large holdings in this space – have done better. So be wary of comparisons between ethical-type funds and funds in the wider market, they may not be a like for like comparison.
Quality fund management
There are some things that drive good returns that are beyond trends or sector biases, like a good fund manager picking good companies to invest in. In my opinion, there are some excellent fund managers in this space, and recently this has been on the increase – especially compared to say a decade ago. Their returns are healthy, as are their inflows.
So whatever the driver – values-based funds apparently can perform very well. They aren’t always going to out or under-perform. Remember they are different because of what they do, and at times they will perform differently because of that.
You can find out more about our range of ethical funds in our new Values-based investing guide or watch this video on how to get an update on how our SL SLI UK Ethical Fund is performing.
Join the conversation
Join the conversation on our MoneyPlus Community or follow us on twitter @sl_moneyplus and Facebook and let us know your thoughts on ethical investing or any questions you have for us after watching the video.
*Relative return of Ethical Subsector to IA UK All Companies sector. As at 31 August 2015, on a total return basis, gross of dividend tax.
Past performance is not a reliable indicator of future performance. The value of your investments can go up or down and may be worth less than you paid in.