Good Money Week kicks off this Saturday as ethical funds appear to be more popular than ever. The media is certainly spotlighting investing sustainably. But does investing in ethical funds mean your investment returns take a hit?
It has now been a good few years since I wrote my first article on sustainable investing, looking at what were then the newly established UN Principles for Responsible Investing.
The Coronavirus pandemic seems to have thrown a spotlight on ESG factors in investing, with a strong media focus on ethical funds. Every month over the past year or so seems to bring a new ethical fund launch and investors certainly have more choice than ever.
If you listen to media noise, it would seem investors and pension savers are more interested than ever in the ethical implication of their investments.
Investment platform AJ Bell has released some interesting analysis today, looking at ethical funds performance record in the IA UK All Companies and IA Global sectors.
Interestingly over ten years the average UK ethical fund has outperformed the average non-ethical fund and the FTSE All Share by 40%. That could be quite a large wad of cash for an investor.
But is this luck or judgement? And can recent outperformance be maintained?
If you look at the benchmark MSCI World Index the average global ethical fund underperformed over ten years. This is despite the average global ethical fund performing bettering than the average UK ethical fund.
Unless we see heavy withdrawls from the sector in the next few months, ethical funds are on course to have their largest ever year in terms of retail funds. Although there is still plenty of room for growth.
It will be interesting to see if this is a long-term trend or simply a short-term pandemic induced phenomenon.
I look forward to seeing what good ESG investments look like in a post-Coronavirus pandemic world, as advisers and investors explore new strategies to make sense of sustainable investing.
Brandon Consulting Services Ltd 