WHEN advisers discuss financial planning with their clients they sometimes begin with the question: do you know what your money is doing tonight?
This is because these days, we can invest our cash in keeping with our personal beliefs, and vote with our money by choosing what are called ‘ethical investments.’
With the war in Syria driving hosts of refugees out of the country, for instance, many take a stand on principle to be sure their investments do not support companies or regimes that benefit from military conflict.
And as the ongoing controversy involving Volkswagen’s car emissions brings environmental issues to the fore again, many investors want to seek out investments that do not support companies involved in damage to the environment.
There are other funds that invest in keeping with countries and companies that are doing positive things in areas like poverty and human rights.
No wonder that ethical investing is in demand.
Ethical funds researcher Eiris has recently released some new numbers to show that the total invested in the UK’s ethical retail funds, including investment trusts and some pension-related products, has now topped £15bn, more than double what it was 10 years ago.
During its annual ‘Good Money Week’ in October, Eiris said there are now nearly 100 ‘green’ and ethical funds to choose from, whereas a decade ago there were just a couple of dozen.
In the early years of ethical investing in the UK, back in the 1970s, investors feared that funds which generally tend to avoid investing in the big oil and gas companies would also miss out on the steady growth that sector can generate.
The plus side is that ethical investors have avoided getting burnt by the recent fall in value of oil and gas shares, as the prices of commodities have taken a nosedive.
They have also been protected from any other unexpected once-off events that hit the oil and gas sector.
For the classic example of this, do you remember the Deepwater Horizon oil rig explosion on April 20 2010?
Eleven people lost their lives as an estimated 4.9 million barrels worth of oil spilled into the sea.
Poor old BP watched the value of its shares lose half their value as their share price sank to the bottom of the Gulf of Mexico.
Ethical investors were among the most horrified of all, of course, but at least they were sheltered from the financial losses of those directly or indirectly investing in BP.
In other words, ethical investing can have other advantages, in addition to giving you a clear conscience.
Since those early days of the 70s, the performance of ethical funds has also come a long way. Nowadays ethical funds not only compete, they often outperform the non-ethical competition.
Numbers from the funds performance specialist Lipper show that in the last 3 years, the typical ethical fund has delivered impressive returns of 30 per cent compared with 24 per cent from the average non-ethical competitor.
Over 5 years, a similar picture emerges, with respective returns of 40 per cent versus 34 per cent.
Part of the reason they achieve this is by heavily investing into relatively ethical big-name brands, which can be considerable motors for growth.
A quick look at some of the top holdings of many leading ethical funds shows most invest in well-known brands such as Vodafone, Lloyds Bank and Next.
If you work with a financial adviser who has access to the services that track the performances and holdings of ethical funds, you find that some of the star performers in recent years have had a very impressive run.
Let’s have a look at the ‘best of the best’ to see what the right ethical investment can do.
One top performer is Standard Life UK Ethical, which has returned 76 per cent over the past five years.
Almost as impressive is the Kames Ethical Equity Fund, with a five-year total return of 69 per cent.
Or look at the Jupiter Ecology fund, which invests in companies working to address environmental problems such as water shortages and pollution. If you had invested there five years ago, you would have achieved a total return of 33 per cent.
You can’t argue with results like those – great returns you can enjoy with a clear conscience!
:: Michael Kennedy is an independent financial adviser and investments and pensions specialist, and can be contacted on 028 71886005
