Ethical Performance
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guest column: comment

May 1999

Lee Coates, director of Ethical Investors Group, reviews the financial performance of ethical unit trusts in the last 12 months

Applying ethical and ecological criteria often forces unit trusts into medium and small cap companies, so it is interesting to see how this category of funds has performed in financial terms over the last year – a period when blue chips have fuelled the bull market and the performance of the medium and small cap companies has, until very recently, been notably weak.

You might therefore expect most ethical funds – the term generally includes funds invested according to ‘green’ or environmental criteria – to have shown poor financial performance over this period. Yet this is not the case. The Standard & Poor’s Micropal statistics show that between March 1998 and March 1999 nine out of the 24 funds comfortably outperformed the FTSE All-Share Index. Two of the funds showed a percentage rise more than twice that achieved by the FTSE. A further four rose by more than 10% compared with the FTSE’s 7.99%.

However the ethical fund sector as a whole has significantly underperformed the FTSE All-Share Index over the period shown. The mean percentage rise for all 24 funds was only 4.16% – a little more than half the rise shown by the FTSE All-Share.

Why such a disparity in financial performance? Luck plays a part of course, and the period chosen may simply not be long enough to allow the strategies of some fund managers to come to fruition – or to unravel. But the table also demonstrates an old adage:a pooled fund's performance essentially depends upon the ability of its manager to pick the right stocks at the right time.

Sometimes managers get it right and sometimes they get it wrong. When making a long term investment, the over riding factor is the pedigree of the investment group and the individual manager – and in the ethical sector there are some exceptional managers.




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