Even though the average "socially responsible" UK and global funds have underperformed in the medium- and long-term, there are some that have beaten their peer group, benchmark and the wider market on a consistent basis.
Here are five that investors may wish to consider for their portfolios:
Kames Ethical Equity
"This is the pick of the bunch in my opinion," said Richard Troue, fund analyst at Hargreaves Lansdown. "If you’ve got an ethical focus, this is the one that I rate highest."
Audrey Ryan’s £265m portfolio is the only ethically focused fund on Hargreaves Lansdown’s Wealth 150 list.
According to FE data, it has outperformed its FTSE All Share benchmark and IMA UK All Companies sector in the short-, medium- and long-term. The fund is a top-quartile performer over one, three and 10 years, and second quartile over five.
Performance of fund vs sector and index over 10-yrs
Source: FE Trustnet
||1-yr returns (%)
||3-yr returns (%)
||5-yr returns (%)
||10-yr returns (%)
|Kames - Ethical Equity
|FTSE All Share
|IMA UK All Companies
Over the last decade, Ryan has returned 187.45 per cent – more than 46 percentage points more than the All Share. It has, however, been slightly more volatile.
These returns are higher than those from IFA favourites such as BlackRock UK Special Situations and Alastair Mundy’s
Investec Special Situations fund, which have returned 185.5 and 181.1 per cent respectively.
Although many ethical funds use an ethically focused benchmark such as the FTSE4Good UK Index, Kames has chosen the All Share, which includes many companies that the fund is banned from investing in.
As a result of the fund’s stock-specific ethical criteria, Ryan is severely underweight banks, pharmaceuticals, mining and tobacco. Her biggest position is in industrials, which has a 22.5 per cent weighting.
Kames Ethical Equity has a minimum investment of £500 and a total expense ratio (TER) of 1.57 per cent.
First State Asia Pacific Sustainability
FE Alpha Manager David Gait’s £240m portfolio has five FE crowns, and for good reason: according to FE data, it is the best-performing fund in the entire IMA Asia Pacific ex Japan sector since its launch in December 2005, with returns of 162.36 per cent.
This means the fund has beaten the much higher profile and larger First State Asia Pacific and Asia Pacific Leaders funds, headed up by Angus Tulloch.
Performance of funds, sector and index since launch
Source: FE Trustnet
First State Asia Pacific Sustainability has also been less volatile than these two funds since launch, although it did lose more in 2008.
Gait’s portfolio is a top-decile perfomer over one, three and five years as well, and is way ahead of its MSCI AC Asia Pacific ex Japan benchmark, with less volatility.
Its underweight in the mining and banking sectors provided a major boost in the 2011 downturn.
The fund soft-closed in January this year, meaning new investors will now have to pay an initial charge of 4 per cent to get access to it. However, it still has a minimum investment of £1,000 for anyone willing to splash the cash.
For Hargreaves Lansdown customers this 4 per cent fee is waived, and the TER of 1.73 per cent remains the same.
Jupiter Responsible Income
In the popular UK Equity Income sector, Chris Watt’s Jupiter Responsible Income portfolio has arguably the most consistent record of all the ethically focused options.
The £40m portfolio has beaten its FTSE4Good UK Index benchmark, FTSE All Share and sector average over one and three years, as well as over one, three and six months.
With returns of 123.27 per cent, it has beaten its benchmark and sector over 10 years as well, although the All Share comes out on top by 17 percentage points over this longer time frame.
Watt avoids investing in companies associated with armaments, tobacco, nuclear power and animal testing.
The fund has a yield of 3.9 per cent, a minimum investment of £500 and a TER of 1.72 per cent.
In a recent interview with FE Trustnet
, Watt highlighted five income-paying stocks
that fit the mandate of an ethically focused investor.
CIS Sustainable World Trust
FE Alpha Manager Mike Fox’s portfolio – the only one of the five that sits in a multi-asset sector – has made a strong start since it was launched in September 2009.
According to FE data, it has returned 34.37 per cent over this period, compared with 18.68 per cent from its IMA Mixed Investment 40-85% Shares sector average. It has also been slightly less volatile.
Performance of fund vs sector since Sept 2009
Source: FE Trustnet
While it only has £83.5m assets under management (AUM), it recently celebrated its three-year anniversary, meaning it may experience larger inflows in the near future.
The portfolio currently has 23.2 per cent in fixed interest, 7.4 per cent in cash, and the rest – 69.4 per cent – in equities. CIS Sustainable World Trust has a minimum investment of £1,000 and a TER of 1.55 per cent.
Fox also manages the CIS Sustainable Leaders Trust.
In an interview with FE Trustnet
back in November 2010, Fox said his funds had benefited from their move away from ethical management in its purest form, towards a more sustainable approach.
"In that sense we are not exclusionary or moralistic in our approach, but look to find a tangible social benefit from services or the way the company is run," the manager explained.
Ecclesiastical Amity International
This is another fund run by an FE Alpha Manager, this time in the shape of Robin Hepworth. His globally diversified fund has returned a touch more than 200 per cent over the last decade, compared with 142.67 per cent from its FTSE World benchmark, and 110.06 per cent from the average Global fund.
The £189m portfolio is also a top-quartile performer over a five-year period, but its significant overweight in emerging markets has cost it over one and three years, which is why it has marginally underperformed.
Hepworth seeks to avoid companies that have a material involvement in alcohol, tobacco, weapon production, gambling or the publication of violent or explicit materials.
Ecclesiastical Amity International has a minimum investment of just £200 and a TER of 1.58 per cent.