So, ethical funds perform well and they are better for the world. What’s not to love? Nothing – but it’s important to be prepared. There will always be times when solid defensive companies – with addicted clients – will find favour with investors. As such, cigarette and alcohol companies tend to perform more consistently. Another example: last year was a tough year for ethical investors because Facebook and Amazon performed well. Because they have monopolistic qualities, and – as we have found out recently – may be a little careless with people’s data, they’re not often included in ethical portfolios
There is also the problem of defining an ethical fund. They lurk in the IMA UK All Companies, global or UK equity income sectors. Some companies just put an ethical screen over everything. A lot of the major fund management groups have an Environmental, Social and Governance (ESG) guidance engine driving their investment selection. Hermes is the granddaddy, but Schroders and M&G also have well-established internal ethical teams.
Hargreaves Lansdown has done a solid analysis of funds managed with ethical and social criteria in mind. We think their list is worth a look. Hargreaves' favourite ethical investing fund is Kames Ethical Equity, which returned 4.53% in the 12 months to 6th April 2018. Also high on the list are Eden Tree, which returned 5.47%, and Premier Ethical, which returned 8.06%.
Castlefield has also put together a top 10 list of ethical funds, based on performance. They've ranked everything nice and clearly.