Olivia Bowen, a chartered financial planner at Castlefield Advisory Partners and part of industry body the UK Sustainable Investment and Finance Association, notes that while demand has come from different ages and genders in the past, an uptick in interest from younger individuals is now particularly apparent.
Other issues remain when it comes to definitions. The IA’s measure of ethical fund assets may not count some of the other approaches listed, such as responsible investment funds. Similarly, some funds that now focus more on value-driven metrics, such as a company’s standard of governance or green credentials, may not explicitly define themselves as taking an ethical approach.
As such, Ms Bowen believes advisers looking to embrace the ethical trend should concentrate on their own knowledge in the area, as well as focusing on new sources of demand. “Advisers need to educate themselves regarding SRI and embrace the public’s interest in ensuring their assets are managed with a view to addressing the great risks of our time: climate change, demographic changes, pollution and water security,” she explains.
The bottom line
Many advocates of ethical funds say that the argument on whether ethical investors are giving up performance for their beliefs has now been settled. But even if ethical funds can compete with conventional offerings, it is still important to get the best returns for clients.
With this in mind, we have analysed the best explicitly ethical or ESG-focused funds by five-year returns, as detailed in Table 1. Our analysis looks at the top five equity names, but also takes in multi-asset and bond offerings.
F&C Responsible Global Equity tops the equity rankings, returning £2,023 from a £1,000 lump sum over five years.
As our data runs until the end of September, it does not reflect how October’s market volatility affected the funds. But the recent success of the F&C portfolio can be explained by the managers’ allocation decisions, both in terms of region and sector. The offering’s largest geographical weighting at the end of September was a 56 per cent exposure to the US market.
At the same time, the managers have heavily backed tech stocks, which performed well until the recent sell-off: 23 per cent of the F&C fund’s assets are allocated to IT, with both Apple and Amazon among its 10 biggest holdings.
When it comes to fixed income, other sectors have played a part in the success of investors. Rathbone Ethical Bond, run by Bryn Jones, has a heavy bias to finance.
