Ethical funds fare better amid coronavirus sell-off

by Myron Jobson from interactive investor |

ii research shows that ethical funds have fared better than ‘non-ethical’ funds during the current pandemic. 

New research by interactive investor, the UK’s second largest direct to consumer investment platform, suggests that ethical funds have fared better than ‘non-ethical’ funds amid the coronavirus-linked downturn in global markets.

Data comparing funds with an explicit environmental, social and corporate governance focus with their in-house equivalents found that four out of six ethical funds produced better returns than their in-house stablemates since the beginning of the year when the outbreak of Covid-19 began to take hold to 24 March.

The biggest divergence in performance was between Sarasin Responsible Global Equity and its ‘non-ethical’ sibling Sarasin Thematic Global Equity. The former returned -14.85% while the latter generated -19.18% over the same period.

Over longer periods, five out of six ethical funds produced superior returns than their in-house stablemates over three years, four out of five over five years and two out of three over 10 years. 

When it comes to stocks, leading ethical stock market indices have beaten their non-ethical peers since the beginning of the year (to 24 March). Across the Atlantic, the FTSE4Good US Index returned -11.7% compared to -14.5% for the equivalent ‘non-ethical’ index FTSE USA and -14.4% for the S&P 500 (Source: Morningstar*).

The performance gap is even wider over 5 years (84.5% versus 62.7% and 63.6%).

In the UK, the FTSE4Good UK index beat the FTSE All Share Index, returning -27.7% versus - 28.5% since the beginning of the year and -2.6% versus -5% over five years. 

Interestingly, interactive investor has seen a 1 percentage point increase in assets held in ethical funds and investment trust – 4.47% at mid-March 2020 from 3.68% in mid-February 2020.

Teodor Dilov, Fund Analyst, interactive investor, says: “It would be a stretch to say that ethical funds have been resilient to the sharp downturns in global markets owing to the coronavirus, but our data shows that they have fared better. The most likely reason for this is because of what the ethical funds aren’t holding or holding very little of – namely oil and energy stocks. 

“The energy sector has taken a battering in recent history with the Saudi-Russian standoff and the collapse of the OPEC plus talks earlier in the year, while the unprecedented state-enforced quarantines across the globe to combat the coronavirus outbreak has stymied economic activity and transport which has seen demand for oil plummet in an already oversupplied market.

“Analysis of explicitly ethical funds compared to close in-house siblings over the long term shows that the outperformance of the former is no fluke and adds to a growing body of evidences that you do not have to sacrifice returns to invest ethically.”

Myron Jobson, Personal Finance Campaigner, interactive investor, says: “It would be wonderful to think the increase in assets held in socially responsible funds and investment trusts on interactive investor reflects the growth of ethical investing more broadly. But in such a short space of time, it most likely reflects the fact that ethical propositions have held up a little better than the wider market. Nevertheless, this is further proof, were it needed, that investing for good doesn’t have to mean sacrificing performance.

“The coronavirus pandemic has affected all aspects of life and has raised some fundamental questions about how we live and how we work, and the sort of planet we want to live in. It will be interesting to see if this starts to feed through to greater demand for ethically minded investment options.”

interactive investor compiled an ethical investing long list last year that is broken down into three ii ACE investment styles: Avoids, Considers and Embraces to help steer investors. 

We also launched our ethical ACE 30 rated list, the UK’s first, last year, and an interactive investor ethical growth portfolio in January 2020 for investors who want a ready-made, balanced, multi asset portfolio run within a socially responsible investing framework.

Fund YTD 1 Year 3 Years 5 Years 10 Years
Rathbone Ethical Bond -7.94 -1.1 2.47 3.51 6.99
Rathbone Strategic Bond Instl Acc -7.69 -4.08 0.28 2.27
Sarasin Responsible Global Equity I Acc -14.85 -0.2 5.09 6.93
Sarasin Thematic Global Equity Acc -19.18 -6.72 1.82 4.24 5.83
Stewart Investors AsiaPac Sust B Acc GBP -14.55 -12.64 1.14 4.77 9.87
Stewart Investors AsiaPac Ldrs A Acc GBP -14.27 -12.11 -0.69 3.22 7.42
Unicorn UK Ethical Income B Acc -37.33 -29.4 -7.56
Unicorn UK Income B Acc -38.79 -28.43 -8.01 -2.56 8.29
7IM Sustainable Balance C Acc -11.36 -5.24 -0.24 1.3 3.83
7IM Balanced C Acc -13.44 -10.05 -2.88 -0.6 3.08
Kames Ethical Corporate Bond GBP A Acc -4.74 -0.14 1.06 2.15 4.88
Kames Sterling Corporate Bond GBP B Acc -6.04 -0.47 1.64 2.5 5.6

Morningstar Direct as at 24 March 2020. Total (%) returns in GBP. Past performance is no guide to future performance.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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