Ethical Performance
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first quarter brings relief

June 1999

John Fleetwood of Ethical Investment Services reviews the financial performance of ethical unit trusts in the first quarter of 1999

Smaller companies in the UK have seen a marked upturn in performance since the start of the calendar year, especially in comparison with their larger counterparts. Given that ethical funds are heavily overweight in small cap stocks, one would expect a turnaround in the underperformance of ethical funds as a whole over the last year.

This has in fact been the case for ethical funds investing wholly in the UK, with 10 out of the 17 UK funds listed outperforming the FTSE All-Share Index.

Indeed, if retail and institutional versions of the same fund were treated as one for these purposes, then the outperformance of ethical funds investing in the UK over the last quarter would be further pronounced.

As may be seen from the table on the right of this column, one international fund, Equitable Ethical, also outperformed the FTSE All-Share Index. Comparing international funds with the FTSE All-Share Index is a little unfair and demonstrates the problems associated with treating the ethical sector as a single entity, since they have very different objectives and frameworks for investment.

Once again significant diversity in fund performance is evident, but if one treats ethical funds as a whole, the heavy weighting in smaller companies is reflected in the performance relative to the index.

As smaller companies are once again appreciated for the value which they are offering, particularly in the UK, the underperformance of the preceding year is being reversed. As the newer ethical funds diversify in to larger cap stocks, it will be interesting to see whether the close correlation between the fortune of smaller caps and ethical funds is dissipated.




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