Darius McDermott: Ethical investing lags consumer trends

Ethical funds represent a pitiful 1.3% of assets in the UK

From walking rather than driving, taking our own coffee mugs to Starbucks, recycling our household waste and using bags-for-life, most of us are making more ethical and sustainable choices as consumers.

But when it comes to our investments, we’ve been remarkably more reticent. Although ethical funds have been available for three decades now, funds under management represent a share of just 1.3% of the industry total, according to Investment Association statistics.

Three reasons ethical investing may finally come of age

However, recent statistics suggest a more promising future.

First, net retail inflows into ethical funds in July were £164m, compared with £72m for Asian equity funds and £1m for Japanese equity funds, according to the IA. Meanwhile, in the same month, European, North American and UK equity funds all experienced outflows of £156m, £256m and £315m, respectively.

In addition, 2018 has been a record year for listings of ETFs with environmental or social goals. So far 10 have been listed on the London Stock Exchange, compared with six in the whole of 2017. There are now more than 30 passive vehicles listed with assets under management of £3.97bn – about a quarter of the assets held in actively managed ethical funds.

Third, recent surveys from both Barclays and Schroders suggest that millennial investors could drive demand further. The latest Barclays Impact Investing Report, which surveyed 2,000 investors showed that almost half of respondents under the age of 40 had made an impact investment. This compares with just 9% for those aged 50-59 and 3% of those aged 60-plus. Schroders’ Global Investor Study for 2017 backed this up, with more than half of millennials already investing sustainably.

Three funds to consider for Good Money Week

Good Money Week, which begins on 29 September, is an annual campaign designed to raise awareness of sustainable and ethical options when it comes to bank accounts, pensions, savings and investments.

To mark the occasion, here are three Elite Rated ethical funds that could make a you profit without sacrificing your principles.

  1. Edentree Amity UK

As a pioneer of responsible investing, Edentree offers even the most discerning client a justifiable investment opportunity. The Amity UK fund has been run by Sue Round, one of the country’s longest-serving ethical managers, for more than three decades. The fund invests in a large number of smaller and medium-sized UK companies.

  1. Rathbone Ethical Bond

The Rathbone Ethical Bond fund invests in quality investment grade bonds. It has a high income target and ethical exclusions are simple: no mining, arms, gambling, pornography, animal testing, nuclear power, alcohol or tobacco. All investments must also have at least one positive environmental, social or corporate governance quality.

  1. Standard Life Investments UK Ethical

This fund encapsulates the best ideas from the experienced team at Standard Life Investments, which manager Lesley Duncan uses alongside a ‘no compromises’ ethical screening. Lesley has between 50 and 100 holdings, and looks to keep them for three to five years, expecting them to grow in value, and also provide some income, though this isn’t the key focus.

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