Blog by John Fleetwood – May 2018


Positive Investing can make a positive impact on your returns

The myth of ethical or sustainable funds underperforming the wider market has endured over many years, but the evidence is getting stronger and stronger, that the reverse may be true, although there is considerable variance between funds.

It is important to compare like with like, so every six months, we analyse the performance of ethical funds within their respective sectors, looking at the three of the most commonly used sectors – namely Global equity, UK All Companies  and Sterling Corporate Bonds. We look at discrete annual periods to give a better picture of the consistency of performance, as well as the cumulative five year performance.

We’ve also compared the performance of those funds rated 3 Stars or higher to see how higher rated funds perform relative to conventional funds, and to ethical and sustainable funds as a whole.  It is evident that positive impact need not come at the expense of financial returns, and if anything, investing for positive impact can improve returns.  The latest results confirm this.

The last year has been a strong one for ethical UK equity funds which has also strengthened the 5 year returns.  In only one of the discrete calendar periods have ethical funds significantly underperformed the wider market, with outperformance in the other four years. The effect is even more pronounced for funds with a 3D rating of 3 Stars or more, demonstrating that focusing on a positive social impact can actually enhance returns.

The picture is less clear for global equity funds, but overall, ethical funds have outperformed the sector in 3 of the last 5 discrete calendar years.  Over the last 5 years, the total return of ethical funds is marginally lagging that of the sector but this is skewed by a few funds that have significantly underperformed the index.  In fact, the median ethical fund has outperformed the sector with 10 of 14 funds having achieved financial returns better than the sector average.  Once again, there is a clear positive relationship between a higher 3D Star Rating and financial performance.

The results for UK ethical corporate bond funds are even more encouraging, with the average ethical fund having outperformed the sector in each of the last 5 years.  Again, the result is even more pronounced for funds with a 3D rating of 3 Stars or more.

In conclusion, it can be seen that, if anything, investing ethically, and in particular, investing positively, can enhance financial returns.

These are the opinions of John Fleetwood and do not necessarily reflect those of Pennine Wealth Solutions.