You are here: Home - Investing - Experienced Investor - News -

How a marmite attitude is holding back ethical funds growth

0
Written by: Adam Lewis
16/10/2015
As the ethical funds industry gears up for its annual effort to raise awareness of what it has to offer, it has been argued it must do more to stop a “flat line” in investor interest.

Good Money Week – which runs from Sunday October 18 to October 24 – is now in its eighth year, having previously been branded ‘National Ethical Investment Week’. However in the last decade it has been noted that assets under management in the industry, which has been around since 1984, have stayed static at the £9.95bn mark.

This represents only 1.2 per cent of total industry assets, a figure which according to the Investment Association has not changed in the last 10 years. This is despite the fact that over the past five years the performance of ethical benchmarks has been better than their non-ethical counterparts.

For example the FTSE4Good UK benchmark has returned 48 per cent over the past five years to October 8 2015, versus a 43 per cent return from the FTSE All-Share. Meanwhile on a global basis the FTSE4Good Global benchmark rose 62 per cent over the same time period, just ahead of the MSCI World Index which was up 60 per cent.

Jason Hollands, managing director at Tilney Bestinvest, says: “The lack of cut-through for ethical investment over many years is really quite surprising when you look at other industries, where it is clear that sections of the public are willing to adjust their economic activity to reflect their values.”

He adds: “This is all the more disappointing given the relatively favourable investment climate for many ethical funds in recent years. Ethical funds are typically structurally underweight commodity and oil and gas companies as these have high environmental impacts and often operate in countries with poor governance or human rights. These sub-sectors have had a torrid time of late as energy and commodity prices have tanked – a factor that has worked in favour of the relative positioning of many ethical funds.”

Of the £9.95bn held in ethical funds, the fund management group Kames Capital manages £2.04bn, giving it a high market share. Speaking at a roundtable on the sector this week, Ryan Smith, the group’s head of corporate governance and ethical research, said he too would like to see the industry move past the 1.2 per cent market share mark.

“A number of funds, including our own, have disproved the performance penalty myth of ethical investing over long periods,” he says. “Research suggests that the Millennials, those born between the early 1980’s and early 2000’s are particularly interested in investing responsibly.  This demographic group are tomorrow’s investors.  For this reason, the Kames ethical funds, remain a key pillar of our business.”

At present investors have 63 funds from some 31 different providers to choose from, however unlike in other non-ethical sectors, Smith says when it comes to ethical investors money does not tend to move around from group-to-group as much.

“Money is much stickier in the ethical space,” he says. “It does not tend to follow the latest trends and whims and maybe this is why the sector has not been growing.”

He says: “There’s a perception that ethical investing is aimed at a narrow section of the public who are ardent in their beliefs and is focussed on niche areas and is light-weight when it comes to delivering returns, none of which are necessarily true.”

Indeed the Kames Ethical Equity fund, managed by Audrey Ryan, sits first quartile in the IA UK All Companies sector over one, three, five and 10 years. She argues while owning mid and small cars has helped performance, as have not holding mining and gas companies, other sectors she can’t hold such as tobacco, pharmaceuticals have done very well.

“There is always something working for me and against me,” she says. “Indeed managing an ethical fund means you have to think a bit more out of the box than the typical equity manager.”

Hollands is a fan of Ryan’s Kames Ethical Equity fund and additionally highlights the Standard Life UK Ethical fund, as two offerings that have significantly outperformed the FTSE All-Share over three, five and 10 years. However whether or not this outperformance is enough to grow assets is another question.

“For many the whole concept of ethical investing is simply like Marmite – they either love it or hate it and such funds will never appeal to everyone,” he concludes. “However it has a place and with the data showing that well managed funds have held their own when it comes to delivering strong long-term performance versus traditional funds, this market logically deserves to be bigger than it is.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Unfamiliar banks woo savers with top rates…is your money safe?

If you’ve been keeping an eye on the savings best buy tables, you’ll have noticed some unfamiliar names lu...

What the base rate rise means for you

The Bank of England has raised the base rate by 0.25% to 0.5% – following on from the increase from 0.1% to ...

How to get help with your energy bills

The rise in the energy price cap from April will mean millions of households will pay hundreds of pounds a yea...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week