You don’t have to compromise performance to invest sustainably

by Jemma Jackson from interactive investor |

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Ahead of Good Money Week, we look at how our ACE 30 list of rated ethical funds and trusts has fared a year since its launch.

Ahead of Good Money Week (24th - 30th October 2020), interactive investor, the UK’s second largest direct-to-consumer investment platform, looks at how its ACE 30 list of rated ethical funds and trusts has fared one year on since launch. 

It’s been a rocky year for equities, but the data suggests you don’t have to compromise returns to invest ethically.

interactive investor has also published data on the percentage of customers on its platform investing in sustainable investments, broken down by generations. Whilst it is growing, it is from a low base and interestingly, investors are more likely to have ethical investments in their SIPP than their ISA.

ACE 30 was the UK’s first ethical rated list, and the platform followed this up with an ethical growth portfolio in January 2020, and expanded its Quick Start recommendations for beginner investors last month, with a sustainable range from asset manager BMO. ii also publishes an ethical investing long list, so investors can more easily look at all the options available on its platform.

ACE 30 performance

Whilst past performance is no guide to the future, and it is important not to read too much into such a short time frame, some 67% of ACE 30 produced a positive return in the year since launch, with 53% in first quartile and 17% in second quartile. Some 20% were in third quartile and 10% were fourth quartile. Again, this is a very short time frame, and investors should be taking a much longer-term view.

The top performer for the ACE 30 over the last volatile year is iShares Global Clean Energy ETF (LSE:INRG) which returned 62.79% over 12 months to 30 September 2020, ahead of Brown Advisory US Sustainable Growth and VT Gravis Clean Energy Income, which returned 28.45% and 17.89% respectively.

The lowest performing funds since launch are those skewed to the UK market, which have been buffeted greatly by the economic impact of the Covid-19 pandemic and the ongoing uncertainty over Brexit has exacerbated matters.  

Unicorn UK Ethical Income was the worst performer over the period (-14.44%), behind BMO Responsible UK Income (-12.77%) and L&G Ethical (-11.88%). 

Dzmitry Lipski, Head of Funds Reach, interactive investor, says: “Over the last 12 months since the launch of the ACE 30, the funds have performed in line with expectations with 67% of funds achieving positive performance over the period. Over the same period, 70% of funds were in the first and second quartile vs their respective peers, illustrating that you don’t have to compromise returns to invest sustainably. Passive funds also achieved tight tracking errors over the period and were in line with expectations. 

“In all, most of the funds on our ACE 30 list have shown great resilience to the sharp downturns in global markets owing to the coronavirus. This is most likely because these funds have little or no exposure to sectors, such as oil and hospitality and leisure, which have tanked during the pandemic.

“It is interesting to see the worst performing ethical funds are UK focused. It has been a tough period for the UK market which has endured a significant economic knock from the Covid crisis – further compounded by the ongoing uncertainty over Brexit. However, although relatively poor absolute performance, these UK funds have proven resilient within the market environment and have fared well in comparison to their benchmark and respective peers, outperforming the FTSE All Share and achieving first or second quartile vs peers.”

Myron Jobson, Personal Finance Campaigner, interactive investor, says: “Once a niche area of investments, ethical investing has catapulted into the mainstream as various high profile campaigns from the likes of Greta Thunberg and David Attenborough has forced many investors to consider whether they are putting their money where their mouth is when it come to their moral views.

“Far from compromising investment performance, the returns generated by the vast majority of the ethical funds we rate add further credence to a growing body of evidence that ethical funds often perform better than ‘not ethical’ alternatives. 

“While not without its challenges, the future appears bright for socially conscious investments, with broader efforts towards net zero carbon emissions by 2050 boding well for the green energy sector. Meanwhile steps towards a more inclusive and diverse working culture could benefit companies that are already ahead of the game – as well as the funds that invest in them.”

Ethical investing on the up on ii

Appetite for ethical funds and investment trusts is growing among ii customers, but it is a slow burn. The average weighting via the ii Sipp is 2.49% (to 30 September) - up from 1.92% at the end of 2019 and 1.77% at the end of 2018. For ISAs, it’s 1.88% - a rise from 1.44% at the end of 2019 and 1.13% at the end of 2018.

Despite a common perception that millennials lead the charge when it comes to investing ethical, the older generation are a little bit ahead of the game. 

ii customers in the Gen X generational cohort have moved from 1.65% of assets in ethical funds/investment trusts on our ethical long list at the start of this year to 1.89% (as of 14 October 2020). For Baby Boomers, the average weighting to such investments has increase to 1.87% from 1.61% at the start of this year. This outstrips the average weighting among Millennials (1.75%, up from 1.53%).

ACE 30 – performance over the last year to 30 September 2020

   
Fund/Index   
   
Return   
   
Quartile vs Peers   
   
Outperform Benchmark   
   
iShares Global Clean Energy ETF USD Dist   
   
62.79   
   
1   
   
passive   
   
Brown Advisory US Sust Gr GBP B Inc   
   
28.45   
   
2   
   
N   
   
VT Gravis Clean Energy Income C GBP Acc   
   
17.59   
   
3   
   
N   
   
Impax Asian Environmental Markets IRL X   
   
17.55   
   
2   
   
Y   
   
BMO Responsible Global Equity 2 Acc   
   
17.08   
   
2   
   
N   
   
iShares MSCI USA SRI ETF USD Acc   
   
17.08   
   
1   
   
passive   
   
Liontrust Sust Fut Eurp Gr 2 Net Acc   
   
16.87   
   
1   
   
Y   
   
Impax Environmental Markets Ord   
   
15.13   
   
1   
   
Y   
   
Syncona Ord   
   
12.67   
   
1   
   
N   
   
Fundsmith Sustainable Equity I Acc   
   
12.00   
   
3   
   
N   
   
Royal London Sustainable Div C Acc   
   
10.98   
   
1   
   
Y   
   
UBS ETF MSCI World SRI USD A dis   
   
8.69   
   
1   
   
passive   
   
Rathbone Ethical Bond I Acc   
   
5.67   
   
1   
   
Y   
   
MSCI World NR USD   
   
5.24   
   
-   
   
-   
   
Climate Assets B GBP Acc   
   
5.22   
   
1   
   
Y   
   
PIMCO GIS Global Bond ESG Instl GBPH Inc   
   
4.51   
   
1   
   
Y   
   
Liontrust Sust Fut Corp Bd 2 Grs Inc   
   
4.05   
   
2   
   
Y   
   
Stewart Inv Glbl EM Sustnby B GBP Acc   
   
3.59   
   
3   
   
N   
   
BBgBarc Global Aggregate TR Hdg GBP   
   
3.30   
   
-   
   
-   
   
Threadneedle UK Social Bd Z Grs Acc£   
   
2.77   
   
3   
   
N   
   
Royal London Sustainable Leaders C Acc   
   
1.71   
   
1   
   
Y   
   
UBS ETF MSCI Pacific SRI USD A dis   
   
0.96   
   
1   
   
passive   
   
iShares MSCI EM SRI ETF USD Acc   
   
-1.52   
   
3   
   
passive   
   
Liontrust UK Ethical 2 Net Acc   
   
-2.73   
   
1   
   
Y   
   
AXA Ethical Distribution Z Acc   
   
-3.40   
   
3   
   
N   
   
EdenTree Amity European B   
   
-3.46   
   
4   
   
N   
   
Vanguard SRI European Stk EUR Acc   
   
-3.49   
   
3   
   
passive   
   
Trojan Ethical Income Fund O Acc   
   
-5.17   
   
1   
   
Y   
   
Pacific Assets Ord   
   
-8.56   
   
4   
   
N   
   
L&G Ethical I Acc   
   
-11.88   
   
1   
   
passive   
   
BMO Responsible UK Income 2 Acc   
   
-12.77   
   
1   
   
Y   
   
Unicorn UK Ethical Income B Acc   
   
-14.44   
   
2   
   
Y   
       
   
Source: Morningstar Direct as at 30th   September 2020. Returns in GBP   
   
passive   
Note: for investment trusts we use market (price) return and for funds we use total return.

Past performance is no guide to the future and the performance of your investments, and the income from them, can go down as well as up and you may not get back the original amount invested.

It is important to look at longer term performance, but this table shows performance since inception of the list.

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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