Moneyfacts finds ethical funds outperform non-ethical sector
Ethical funds continue to show their resilience during a period of uncertainty versus traditional non-ethical funds according to the latest analysis by Moneyfacts.co.uk. This has coincided with a consistent media focus on climate change and the ESG agenda which coupled with competitive fund performance could encourage more investors to choose ethical funds in the months to come.
Ethical funds overall returned 19.87 per cent over the past year, versus 17.89 per cent for non-ethical and ethical funds continue to outperform non-ethical over several investment periods.
Out of 23 comparable sectors which include ethical funds, 13 sectors produced a greater ethical fund average performance when compared with non-ethical funds, based on the past years’ data.
One fund sector, UK All Companies, which suffered a loss during the year to 1 July 2020 has now seen a spike in growth during the year to 1 July 2021, with ethical funds in the sector returning an average of 25.03 per cent versus a loss of 8.22 per cent a year ago and non-ethical funds returning an average of 28.03 per cent versus a loss of 12.64 per cent.
External studies suggest consumers are building their investor confidence and are keen to invest more ethically, plus many are undergoing a behavioural shift when it comes to tackling climate change.
Rachel Springall, Finance Expert at Moneyfacts.co.uk, says: “The assumption that choosing an ethical fund can mean a sacrifice in return versus non-ethical is untrue and has been so for many years. Ethical funds have outperformed non-ethical in 13 out of 23 sectors based on the latest one-year performance figures. If we travel back to 2020, overall, the non-ethical sector returned a loss of 1.46 per cent and ethical returned a profit of 4.29 per cent over one year. In contrast, both the overall ethical and non-ethical sectors returned growth over the past year of 19.87 per cent and 17.89 per cent. Whilst past performance cannot guarantee future growth, it is still encouraging to witness the resilience of ethical funds.
“The pandemic caused volatility across the stock markets, so it would be understandable to assume that UK investors are cautious to invest, but that is starting to change. According to a recent Investor Index study, confidence levels amongst UK investors over the past 12 months rose 20 points (62-82). The same survey revealed that investors felt ethical/socially responsible financial products were more important – now 32 per cent compared to 23 per cent last year.
“Climate change remains a key issue in the media and consumers have been making changes to their behaviour when considering energy efficiency, travel or making purchases – one in five said climate change drove their mind-shift according to a study by BEIS. The study revealed 80 per cent felt concerned or fairly concerned about climate change and 72 per cent believed the UK is not investing fast enough in alternative sources of energy – this mindset may well drive savers towards ethical funds as they look for ways to play their part.
“In the months to come consumers looking to invest or review existing fund selections would be wise to seek advice and keep in mind past performance is not guaranteed for the future. However, as our analysis shows, ethical funds have surpassed non-ethical over the past couple of years and this may not just entice those keen to invest more responsibly but also those chasing good returns.”
Joshua Hewitt, Chartered Financial Planner at Kellands, says: “Although clients may not initiate the conversation around sustainable investing, we find that the vast majority are open to consider the options available to them. Clients who may not have deep rooted conviction to invest in a sustainable manner are more and more willing to consider their opportunities, and although it may not be suitable for them to invest their full portfolio into ESG funds, we are finding that they are wishing to ‘test the water’ and increase the diversification of their portfolios by adding an element of ESG investments.”