Of the 16 ethical funds in the IMA UK All Companies sector, none have outperformed the FTSE All Share over three- or five-year periods, and only one – Kames Ethical Equity – has returned more than the index over 10 years.
The average ethical fund has lost investors 6.3 per cent in the last five years, compared with a positive return of 7.09 per cent from the All Share. The average fund in the UK All Companies sector has returned 2.11 per cent in this time.
The average ethical fund also falls short over one-, three- and 10-year periods.
Performance of funds vs sector and index over 10-yrs
| Name |
1-yr returns (%) |
3-yr returns (%) |
5-yr returns (%) |
10-yr returns (%) |
| Average UK All Companies ethical fund |
-2.87 |
34.45 |
-6.3 |
35.29 |
| FTSE All Share |
-0.77 |
55.67 |
7.09 |
60.35 |
| IMA UK All Companies |
-2.4 |
46.33 |
2.11 |
51.57 |
Source: FE Analytics
The biggest of these 16 funds – F&C Stewardship Growth – has returned 35.89 per cent in the last decade, underperforming its FTSE All Share benchmark by 24 per cent. In the last five years the £495m fund has lost 14.69 per cent.
Although ethical funds have a smaller investment universe than their competitors, the majority use the All Share as their benchmark. While they have a moral obligation to some extent, many managers claim their sustainable focus can actually aid performance.
However, the study reveals that the majority tend to fall short in both rising and falling markets. Although the average ethical fund did slightly better than the FTSE All Share in 2010, it underperformed the index in 2006, 2007, 2008 and 2009, and has also returned less so far this year.
The 16 funds have combined assets under management (AUM) of nearly £2bn.
It is a similar story in other UK-focused IMA sectors. The three ethical funds in the UK Equity Income Sector – Jupiter Responsible Income, F&C Stewardship Income and Henderson Global Care UK Income – have all lost money in the last five years, and also underperformed their sector and benchmark over three years.
Performance of funds vs index over 5-yrs
Source: FE Analytics
All three also have a one-year historic yield of less than 3.6 per cent – the average UK Equity Income fund is currently yielding 4.2 per cent.
That said, F&C Stewardship Income has outperformed its FTSE All Share benchmark by 14 per cent over 10 years, with returns of 74.89 per cent.
The 16 ethical funds in the IMA Global sector put up a much better fight however, particularly in the longer-term.
According to FE Analytics data, the average Global ethical fund has returned 33.2 per cent in the last year, underperforming IMA Global and the MSCI World index by 6.55 and 15.71 per cent respectively. However, over a five-year period, it beat its sector and the MSCI World index, and the margin of outperformance is even greater over 10 years.
Performance of average fund vs sector and index over 10-yrs
Souce: FE Analytics
FE Alpha Manager Rob Hepworth’s Ecclesiastical Amity International fund is arguably the stand-out performer. The fund has substantially outperformed its sector and benchmark over five- and 10-year periods, with less volatility.