Ethical Investors are not investing ethically!
For all the shouting that goes on in National Ethical Investment Week (NEIW) about ethical investing as a success story its impact on the mainstream market remains minimal and my investor review today brought it home. She was investing £50 per month into Artemis UK Special Situations and Invesco UK Aggressive despite saying that she had:
"serious ethical misgivings about eg some countries and companies and whether growth is being achieved at expense of people, wildlife, pollution …"
So it begs the question - what was she doing investing with Artemis and Invesco neither of whom have any ethical fund choices. How did a natural 'ethical' investor come to pick these two funds? Well the answer seems obvious to me:
- Artemis and Invesco are two of the most prominent Investment Houses to the wider public, with big marketing pushes; and
- The continual negative comments in the press and among advisers about performance, based on little knowledge, has broken down investor confidence about investing with values in mind. It is like a death by a thousand knives!
UK Ethical Funds are outperforming currently
As I pointed out to this investor, statistics can be used to show anything and it really depends on what time period you are looking at. Whilst performance of the international equity green funds has looked poorly for quite a while now, when it comes to UK ethical funds, which receives much greater attention, we are now at a great moment. We cannot say all UK ethical funds are currently out performing the regular market, but it is not far off.
Below I show a graph of the relative performance of the Ecclesiastical UK Amity fund (an ethically screened fund with £82.9m under management) against Artemis UK Special Situations (£994.7m funds under management) and Invesco UK Aggressive (£122m funds under management):
As it stands the Ecclesiastical Amity UK fund has returned 42% over 3 years, significantly outperforming the two non-ethical funds my ethical investor had chosen.
It has been a tough time for mining companies over the last year with the slow down in China. Ethical funds would have benefitted from not being in the mining sector, but you win some and you lose some, because UK ethical funds have avoided tobacco companies and the tobacco sector has had a great five years.
NEIW needs to give Ethical Investors confidence
As many of us know investing is a long term game and it is asset allocation (the choice of equities over debt, or property) more than fund manager choice which is likely to have the biggest impact on returns over a 10 or 20 year period. The ethical industry though, needs to give investors the confidence to invest ethically.
National Ethical Investment Week should make a point of showing the above graph, not to say that ethical funds will outperform necessarily in the future as they have done in the past (this will depend on the time period used), but simply to give investors confidence that you can invest with values in mind and outperform those funds which have heavy marketing support such as Artemis and Invesco.