Ethical and profitable too

Can you invest ethically and make a profit comparable to non-exclusionary funds? Yes, is the answer from the latest white List Report by Principal Investment Managers into ethical mutual funds.

The report highlighted Foreign & Colonials well-known Stewardship Fund one of the oldest ethical funds in the industry as being particularly successful. In fact, it was one of the top performing mutual funds I the UK last year.

There is a widespread perception that if you invest in an ethical fund which avoids certain types of companies then it is somehow bound to cost you something in terms of performance, commented Jason Hollands, director and head of communications at F&C. We have proved with the Stewardships fund that this need not be the case.

Ethical funds often superior performance has been put down to the way that the fund managers are forced to invest. Since they cannot invest in certain sectors such as oil and armaments, they are not in the position of normal funds which must invest in FTSE 100 blue-chip stocks to keep track with the market. This means that ethical fund managers must look to smaller companies to make up the difference.

Because we cant buy some of the FTSE giants were forced to pay more attention to the smaller and medium-sized stocks, says F&Cs Hollands. Thats often where the interesting stocks are found. We only invest where we have a strong conviction, and not only to maintain a market weighting.

F&Cs Stewardship also scored highly in terms of low volatility. This also defies received wisdom that ethical funds are more volatile because forced to invest in smaller companies.