Should you consider investing in ethical funds?

Julie Brownlee, Fsp Invest, 23 Apr. 2015

Tags: ethical investing, ethical funds, investing, investing in ethical funds, vice stocks, performance of ethical funds, etfs,



Ethical investing (or socially responsible investing) is about investing in companies that will provide financial reward yet act responsibly and avoid investing in certain sectors.

In the US and the UK, there are a number of funds that stick to an ethical investing mandate. So do these funds perform better than the overall market?

Let’s take a closer look…



The ins and outs of ethical investing


Ethical investing is a broad subject and different funds have different criteria of what deems a company ethical. But you can expect an ethical fund to avoid investing in things such as tobacco, alcohol, defence and industries which damage the environment,

Recently, the Credit Suisse Global Investment Returns Yearbook published a study by Elroy Dimson, Paul Marsh and Mike Staunton. They looked at whether investors are rewarded for investing in ‘vice’ companies or whether ethical investing is the better option.


The performance of ethical funds


They looked at the performance of the Vice Fund (VICEX). This is a US-listed fund that invests in vice sectors such as tobacco and defence. They found this fund consistently outperformed the Vanguard FTSE Social Index Fund (which tracks the FTSE4Good US Select Index).

If you’d invested $10,000 in the Vice Fund in 2002, you’d now be sitting on $33,655. The same investment in the Social Index Fund would now be worth $26,788.

The performance of the S&P 500 Index was midway between the two, Matthew Partridge in Money Week explains.

But as the Social Index Fund is essentially a tracker fund, perhaps it’s unfair to compare its performance to an actively managed fund.


Some ethical funds have performed extremely well


The Friends Life Stewardship Fund is a UK-based ethical fund. Since its launch in 1984 until the end of last year, this fund’s returned 2.408%. That’s over 30% better than the performance of the UK large-cap market over the same period.

Other tracker social index funds have also performed marginally better than the broader market.

Ethical investing does have its merits, but the funds differ widely depending on what fund managers deem as ethical.

If investing in ethical funds is something you’d like to pursue, you’re limited in South Africa. The US and the UK offer a wide range of different ethical funds that you could consider, but you’d have to use your offshore allowance.

So there you have it, why you could consider investing ethically.

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