Investors know all about the benefits of putting money into stock markets, but what if there were secondary benefits? What if investors could do “good” with their savings?
The concept of using investing to invoke positive change in the world is becoming more popular, as is the idea that people don’t need to give their money to companies they disagree with.
All of this has led to the growth of “ethical investing” – buying funds, stocks and bonds we think are “good” but also make us a return.
Countless studies have debunked the myth that investors cannot make lucrative decisions based on their conscience. Investment firms now offer an array of “ethical” funds but there is no centralised rule governing how their holdings are chosen or the criteria by which they operate.
So Telegraph Money brings you its top 10 ethical funds – a list of our favourites that make money morally.
Trojan Ethical Income
This fund invests in British companies but screens out stocks involved in tobacco, pornography, fossil fuels, armaments, high-interest lending and gambling. It is run by Hugo Ure who also manages the popular Trojan Income fund. He buys stocks with strong brands that dominate their industries. Since launching in January 2016, the strategy has returned 37pc versus the FTSE All Share index’s rise of 36pc. It has also outperformed the Trojan Income fund’s 28pc return and a 21pc average return for other British company income funds.
Liontrust Sustainable Future UK Growth
This fund also buys British stocks but holds companies the manager believes will make the world more “sustainable”. Peter Michaelis has been running this strategy since 2001 and defines “sustainable” as companies involved in themes that will change the global economy for the better. This includes resource efficiency, healthcare and human safety and resilience. Since launch the fund has returned 191pc – beating a 156pc rise in the FTSE All Share index and an average return of 143pc for all British company funds.
Baillie Gifford Positive Change
The fund has provided outstanding returns since its launch in January 2017. It invests in companies around the world and has a fifth of its money invested in emerging market businesses. Its five-strong management team pick investments that make a “positive social impact” and operate in areas such as education, social inclusion, healthcare, improving quality of life and addressing the needs of the world’s poorest populations. This noble aim has not come at the expense of good returns. Since launch, the fund has made 72pc, more than double the 27pc rise in the MSCI All Country World index, a broad benchmark for global markets, and a 27pc average return for all global funds.
M&G Positive Impact
Managers John William Olsen and Thembeka Stemela run a similar strategy to the Baillie Gifford fund. However, they focus more on healthcare companies and technology businesses and invest less in riskier emerging markets. Early results are promising, with the fund up 17pc since launching in November 2018, ahead of the MSCI World index and the other global company funds.
Stewart Investors Asia Pacific Sustainability
This fund invests across the Asia Pacific region, excluding Japan, with a focus on buying companies that have a positive impact on the sustainability of the planet. Managed by David Gait since 2005, with co-manager Sashi Reddy joining in 2011, it is one of the more experienced management teams investing in the region. Investors have not had to compromise returns. The £316m fund has returned 254pc in the past decade, more than double the performance of its peers (115pc) and the MSCI Asia Pacific ex Japan index (118pc).
Rathbone Ethical Income
This fund solely invests in bonds and has a two-pronged process: it uses a “negative” screen to filter out companies deemed unethical then applies a “positive” screen to select the companies doing the most good in the world. Manager Bryn Jones, who has run the portfolio since 2004, looks for bonds that have a high yield but that are also “investment grade” and from the best-rated companies. It has been a strong performer over the past decade and returned 103pc while the average peer is up 72pc.
Royal London Sustainable World
This fund combines both stocks and bonds and has been managed by Mike Fox since its launch in 2009. The manager buys companies that make a positive contribution to the world or are at the forefront of environmental issues. He has the same search criteria for bonds but also looks for those that are out of favour and so have a higher yield. Since launch, it has been the best performer among its peers, returning 237pc versus 92pc for its rivals.
Lyxor Global Gender Equality ETF
This exchange-traded fund is a passive fund that follows an index dedicated to putting more money into stocks that have a better gender balance than average. The index company, Solactive, includes only businesses that have good workforce equality between men and women, provide parental benefits and have a low gender pay gap. It invests in companies around the world and since it launched in February 2019 has provided the same 20pc return as the global stock market.
iShares MSCI USA SRI ETF
This exchange-traded fund provides investors with access to the lucrative American stock market but removes companies deemed “unethical” or not “socially responsible”, based on research done by index provider MSCI. This excludes stocks involved in nuclear power, tobacco, alcohol, gambling, armaments and pornography. Since the fund launched in July 2016 it has beaten the American market average, returning 64pc versus 53pc for the MSCI USA index.
Civitas Social Housing
This investment trust owns social housing and care homes, which it leases to local councils and care providers. The trust’s income comes from rent and it also benefits from the increase in value of the properties it owns. The managers focus on promoting the well-being of its tenants and providing good quality housing in under-resourced areas. The trust’s share price has struggled in recent months, so it is available at a discount and it provides a good yield of 6.3pc.