Rated funds: Top eight socially responsible/ethical investments
21st June 2013 16:45
by Helen Pridham from interactive investor
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There are a number of funds and trusts that will only invest in shares of socially responsible and ethical companies.
These companies, who make a positive contribution to society, come from a range of different places, both in the UK and abroad. A lot of fund companies have ethical criteria for their managers to adhere to.
Click each chart on the right-hand side for an expanded version.
To find out more about the methodology, read: How Money Observer's Rated Funds were chosen.
Winner, Socially Responsible UK Equity
The £297 million F&C Stewardship fund has a policy based on investing in companies that make a positive contribution to society, avoiding companies that do harm and endeavouring to improve companies' polices.
Manager Catherine Stanley looks for shares that can deliver both growth and income, if possible. This approach means the fund has had a relatively high weighting in medium and small companies, as Stanley has found more stocks there with attractive income and growth. She says this part of the market has provided most of the fund's performance and is likely to continue to.
Winner, Socially Responsible Mixed Asset
The £60 million Kames Ethical Cautious Managed fund is a classic mixed-asset fund consisting of equities and bonds. Kames also offers stand-alone and positioned at the "darker green" end of the spectrum with strong negative investment criteria.
Managers Audrey Ryan and Iain Buckle are responsible for the equity and bond elements respectively. The split between the two asset classes is actively managed taking into account the house view, subject to an upper limit on either one of 60%.
Winner, Socially Responsible Bond
Bond funds have become integral to most investors' portfolios. Fortunately, a growing number are managed along socially responsible lines. Our winner, the £57 million Ecclesiastical Amity Sterling Bond fund, comes from a group that specialises in socially responsible investment.
The fund is managed by Robin Hepworth and Chris Hiorns, who say its consistent performance has been achieved by taking a contrarian yet conservative approach.
This fund is a current member of the Consistent 50. It is managed by Lesley Duncan, who must avoid investing in stocks that do not meet Standard Life's ethical criteria, while seeking to include companies whose business activities are regarded as making a positive contribution to society.
Excluded companies include those that are having a harmful effect on the environment, or are involved in animal testing, pornography, alcohol, tobacco or weapons production. She adheres to the group's "Focus on Change" philosophy to help find potential investments.
This fund is an Editor's Choice. Despite having ethical criteria, it has been able to produce good performance over the past three years. Its main objective is to provide a regular, above-average income, of 5-7%. Bryn Jones, the manager, invests mainly in investment-grade bonds, but also holds higher-yielding and some unrated bonds.
This fund is one of our Editor's Choices. Money Observer likes it for a number of reasons. It has a good performance record, an experienced fund manager, Mike Fox, and it has an ethical investment policy. It can invest in several asset classes, but is primarily weighted towards equities with some bonds and cash. It concentrates on companies making a positive impact on society and has a strong overseas element, giving exposure to global leaders in sustainability.
It focuses on sustainable themes such as healthcare, urban regeneration and climate change. Fox takes a focused, long-term approach to investment so the fund has a lower than average portfolio turnover.
This fund was a winner of Money Observer's Best Ethical/Socially Responsible Fund award in 2012 and is a past winner of the Best Global Fund award. So despite being limited in the companies it can invest in, the fund has achieved good results.
The businesses that manager Robin Hepworth can invest in must take their responsibilities to the environment and society seriously. But he believes this stance can be an advantage, as he feels companies with respect for human rights are more likely to achieve sustainable returns. Despite the restrictions, he manages to maintain a well-diversified portfolio of around 100 shares.
This trust is an Editor's Choice for investors who are interested in environmental issues.
In theory this sector should be thriving as a result of increased regulation and the need for new technologies to deal with pollution and scarce resources, but in recent years it has lagged behind. However, Money Observer likes the fact that this management group specialises in the environmental sector so it should be able to make the best of the opportunities that are available. To qualify for inclusion, companies must generate at least 50% of their revenues from environmental markets. The trust also has a bias towards small and medium-sized businesses.