Proof that ethical funds often outperform their peers
For investors demanding evidence that ethical investing does not sacrifice returns, check this data.
24th September 2019 12:15
by Jemma Jackson from interactive investor
For investors demanding evidence that ethical investing does not sacrifice returns, check this data.
Data produced by interactive investor, the UK's second largest investment platform, adds further weight to the argument that investing ethically does not have to compromise returns.
Released as the United Nations Climate Action Summit is in full swing, the data compares ethical funds with their closest non-ethical 'sibling'Â run by the same investment house.
The data comparing ethical funds with their in-house equivalents found that five out of six ethical funds produced superior returns than their in-house stablemates over the past three years to 31 August 2019, while four out of five funds did so over five years and two out of three in the past 10 years.Â
In more recent history, four out of six ethical funds generated better returns than their 'in-house'Â counterpart in the past year and since the beginning of January (to 31 August) respectively.
| Fund | YTD | 1 Year | 3 Years | 5 Years | 10 Years |
|---|---|---|---|---|---|
| Rathbone Ethical Bond | 10.2 | 8.1 | 5.4 | 6.2 | 9.2 |
| Rathbone Strategic Bond | 5.1 | 3.8 | 3.6 | 4.2 | |
| Sarasin Responsible Global Equity | 24.3 | 9.8 | 13.3 | 12.5 | |
| Sarasin Thematic Global Equity | 21.1 | 5.7 | 11.5 | 10.1 | 9.5 |
| Stewart Investors AsiaPac Sustainability | 7.9 | 5.7 | 10.1 | 11.6 | 14.5 |
| Stewart Investors AsiaPac Leaders | 6.7 | 2.6 | 8.3 | 10 | 11.6 |
| Unicorn UK Ethical Income | 7.4 | -2.2 | 6.1 | ||
| Unicorn UK Income B | 11.9 | -0.3 | 5.8 | 5.4 | 13.4 |
| 7IM Sustainable Balance | 11.2 | 4.5 | 4.4 | 5.6 | 5.9 |
| 7IM Balanced | 8.9 | 0.3 | 3.2 | 3.7 | 5.6 |
| Kames Ethical Corporate Bond | 8.7 | 7.8 | 2.4 | 4.6 | 6.8 |
| Kames Sterling Corporate Bond | 9.4 | 8.2 | 2.8 | 4.7 | 7.4 |
Morningstar Direct as at 31st August 2019. Total (%) annualised returns in GBP. Past performance is no guide to future performance.
The decline in comparable funds over longer investment horizons reflects the fact that many ethical funds have only cropped up in recent years.
Although the data only focuses on ethical funds with close in-house siblings, it adds to a growing body of evidence that investors do not have to sacrifice returns to invest ethically. Recent research by Morningstar found 41 of the 56 Morningstar's ESG indexes have outperformed their non-ESG equivalents (73%) since inception.
Moira O'Neill, Head of Personal Finance at interactive investor, said: "Far from compromising investment performance, the data provides further evidence that you don't have to compromise returns to invest ethically. In many cases, ethical funds have a solid track record of outperforming similar funds run by the same investment house, but without the ethical remit.
"In a study by Morgan Stanley in 2017, 86% of millennial investors surveyed said they are interested in sustainable investing. Climate change; social equality; avoiding harm; there are an increasing number of ethical issues for many. Putting your money literally where your mouth is and using your own investments as a force for good is compelling for many investors - either by choosing companies that are environmentally or socially focused or by proactively avoiding harm.Â
"However, we shouldn't assume that it is just younger generations that is driving this and sustainability is now a major issue for investors of all ages, in particular because in many cases they have a solid track record of outperforming - and today's data adds weight to that."
interactive investor recently launched a rigorously researched 'ethical iinvestments long list'Â of more than 140 socially responsible and environmental funds, investment trusts and ETFs.
The 'Avoids, Considers, Embraces' categories are a clear, jargon free steer to aid selection, without putting any funds into a 'niche' box that can easily be ignored.
These articles are provided for information purposes only. Â Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. Â The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.