Ethical investment growth stunted despite performance sweet spot13 October 2015
Ethical investment growth stunted despite performance sweet spot
Good Money Week, the ethical investment industry’s annual effort to raise its profile, begins this weekend (18-24 October). Yet despite the industry’s efforts to raise awareness of what it has to offer Tilney Bestinvest, the leading investment and financial planning firm, points out that hard data reveals that interest in ethical investment continues to “flat line” despite current favourable market conditions for such strategies.
The UK’s retail ethical investment industry has been around since 1984 but according to statistics from the Investment Association funds with ‘ethical’ mandates total just £9.95 billion of assets more than 30-years on. This represents only 1.2% of total industry assets, a level it has remained stubbornly anchored at for the last decade (1).
Jason Hollands, Managing Director at Tilney Bestinvest, said: “The lack of cut-through for ethical investment over many years is really quite surprising when you look at other industries, where it is clear that sections of the public are willing to adjust their economic activity to reflect their values.”
“This is all the more disappointing given the relatively favourable investment climate for many ethical funds in recent years. Ethical funds are typically structurally underweight commodity and oil and gas companies as these have high environmental impacts and often operate in countries with poor governance or human rights. These sub-sectors have had a torrid time of late as energy and commodity prices have tanked - a factor that has worked in favour of the relative positioning of many ethical funds. Secondly, in the case of UK ethical funds, these are often significantly skewed to mid-caps and smaller companies versus the Index, parts of the market that have delivered much stronger performance than the FTSE 100 in recent years.”
Hollands suggests the ethical investment industry needs to address a number of misconceptions to reach its full potential: “There’s a perception that ethical investing is aimed at a narrow section of the public who are ardent in their beliefs; is focused on niche areas and is light-weight when it comes to delivering returns, none of which is necessarily true.”
“A cursory look at the top holdings of many leading ethical funds reveals that most are littered with well-known businesses such as insurers Legal & General and Prudential, telecommunications firms BT and Vodafone, Lloyds Bank and clothes retailer Next to name a few. These are brands that are instantly recognisable to many members of the investing public, who might currently assume that ethical funds are heavily focused on areas such as renewable energy.”
“For many the whole concept of ‘ethical investing’ is simply like Marmite – they either love it or hate it and such funds will never appeal to everyone. The extraordinary growth of the Woodford Equity Income Fund since launch last year, which has three major tobacco giants in its top ten holdings (2), is a reminder that many investors are relaxed about investing in “unethical” stocks if the investment case stacks up. But ethical investing has a place and with data (3) showing that well managed ethical funds have held their own when it comes to delivering strong long term performance versus traditional funds, this market logically deserves to be bigger than it currently is.”
Two ethical funds Tilney Bestinvest highlights are Kames Ethical Equity and Standard Life UK Ethical, both of which have significantly outperformed the UK’s FTSE All Share Index over three, five and ten years.
(2) Imperial Tobacco (7.27%), British American Tobacco (5.43%) and Reynolds American (3.67%)
(3) 72% of Ethical funds with a five year track record investing in the UK stock market have outperformed
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The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. Past performance should not be considered a reliable indicator of future performance. This article is not advice to invest or to use our services.
Due to their nature, specialist funds can be subject to specific sector risks. Investors should ensure they read all relevant information in order to understand the nature of such investments and the specific risks involved. Please note that ethical funds may, by definition, have a limited investment universe; this may affect performance.
About Tilney Bestinvest
Tilney Bestinvest is a leading investment and financial planning firm that builds on a heritage of more than 150 years. We look after more than £9 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.
We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.
We have won numerous awards including UK Wealth Manager of the Year, Low-cost SIPP Provider of the Year and Self-select ISA Provider of the Year 2013, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.
Headquartered in Mayfair, London, Tilney Bestinvest employs almost 400 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.
The Tilney Bestinvest Group of Companies comprises the firms Bestinvest (Brokers) Ltd (Reg. No. 2830297), Tilney Investment Management (Reg. No. 02010520), Bestinvest (Consultants) Ltd (Reg. No. 1550116) and HW Financial Services Ltd (Reg. No. 02030706) all of which are authorised and regulated by the Financial Conduct Authority. Registered office: 6 Chesterfield Gardens, Mayfair, W1J 5BQ.
For further information, please visit: www.tilneybestinvest.co.uk
Tilney is a leading investment and financial planning group that builds on a heritage of more than 180 years. Our clients are private investors, charities and professional intermediaries who trust us with over £23 billion of their assets. We offer a range of services including financial planning, investment management and advice and, through our Bestinvest service, a leading online platform for those who prefer to manage their own investments.
We have won numerous awards. Tilney has been awarded Best Conventional Advisory Service at the 2018 City of London Wealth Management Awards, Best Advisory Service in the 2015 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. Bestinvest was voted Best SIPP Provider and Best Fund Platform at the 2017 City of London Wealth Management Awards, Best Direct SIPP Provider at the YourMoney.com Awards 2017, Best Stocks & Shares ISA Provider at the 2017 Shares Awards, as well as Best Self Select ISA Provider, Best Online/Execution-only Stockbroker and Best Investment Platform 2017 at the FT and Investors Chronicle Investment and Wealth Management Awards, as voted by readers of the FT and Investors Chronicle.
Headquartered in Mayfair, London, the Tilney Group employs over 1,000 staff across our network of 30 offices, enabling us to support clients with a local service throughout the UK.