University lecturer Helen Morris says she has two main aims when it comes to investing her money.
“On the most basic level I am investing for my own future. I have a pension through my work, and I have also more recently started to invest in a couple of ISAs.
“But while I want a reasonable return on my money, I would also like my money to be doing some good. I don’t want to be investing in companies that are contributing to issues like climate change.”
Morris doesn’t think she is sacrificing returns by following a more ethical stance. In fact she doesn’t really like the term “ethical investing” at all.
“It all sounds a bit po-faced. I do tend to look at ethical funds for investment ideas, but I am not doing this from any religious point of view.”
Morris, who studies social geography, is concerned about environmental issues and want to see large companies take more responsibility. “There’s a whole range of issues, from paying decent wages to their workers, not listing headquarters offshore to avoid tax, as well as reducing waste and pollution. I’d rather my money was invested in companies that had a more positive track record on these issues.”
Company Pension Plan Raised Awareness
She first became aware of these types of investments via her company pension plan. “There was quite a lot of publicity about the pension fund avoiding certain investments. I don’t think it invests in oil stocks now, for example.
“As a member of the scheme I don’t make these decisions directly but there has been a lot of information sent to us about these investments.”
This prompted her to do more research when it came to starting an ISA. She says: “I did a bit more research on socially responsible investing - or SRI investing. This was certainly something that appealed to me.”
Morris has two children aged 10 and six. “I am conscious that I want don’t want to contribute to problems that the next generation will have to solve,” she adds.
She hopes this approach delivers longer-term returns. “This was something that was discussed quite a bit via changes to our pension plan.
“It may mean not getting such a high return in the short term. But as I see it there’s certainly a lot of potential for companies who come up with products that help counter climate change, for example.”
ISAs Split Between 3 Funds
When it comes to her ISA, Morris splits her money between three funds. Her main holding is in Kames Ethical Equity Fund.
This is a Bronze-rated fund and has a three-star rating from Morningstar.
Morningstar analyst Simon Dorricott says: “Kames Ethical Equity remains a good option for those looking to invest in a UK equity fund with fairly strict ethical criteria.
“Since January 2000, the fund has been managed by Audrey Ryan, who has been involved with the strategy since joining Kames in 1997. While Ryan concentrates on the investment process, we like the fact that the ethical screening process, and therefore construction of the investment universe, is the separate responsibility of Ryan Smith, head of corporate governance and ethical research.”
Dorricott points out that shorter-term performance has been affected by headwinds, related to the strict ethical criteria.
However he adds: “While short-term numbers have been disappointing we retain a positive outlook, and feel the manager and team have the potential to turn performance around.”
This fund is predominately a UK-based fund, and has very strict criteria, in other words in screens out companies that engage in a range of activities, such as tobacco firms and alcohol distributors.
More recently Morris has invested in Jupiter Ecology, which has more of an environmental focus, and a global remit.
The fund has performed better of late, which is reflected in its four-star rating from Morningstar. It also has a Bronze rating.
Morningstar analyst Ronald Van Genderen says: “An experienced environmental manager and an established investment process make Jupiter Ecology a solid option in the environmental equity space.”
He adds that the manager, Charlie Thomas has been at the helm of this fund since September 2003. He joined the firm in 2000 from BP, and heads the environmental and sustainable investment team at Jupiter.
Rather than simply screening out whole sectors, the stocks in the portfolio are identified through a ‘bottom-up’ approach, that aims to identify companies that have the potential to generate sustainable profits and benefit from long-term environmental drivers: including infrastructure, resource efficiency, and demographics.
Van Genderen adds that the portfolio tends to be skewed towards smaller and mid cap companies. But he adds: “The fund is typically more resilient than its peers in sharp down markets.”
Can Bond Funds Add Diversification?
Morris’s most recent holding is in Triodos Sustainable Equity fund. This is another fund that adheres to strict SRI principles, but has more of a weighting towards global large caps.
It has a two-star rating from Morningstar. According to Morningstar data it has delivered annualised returns of 11.38% over the past five years.
Morris says: “I have only really invested in this fund in the last 12 months. I have direct debits putting a monthly amount into my other ISAs, but I had some surplus cash from an inheritance so decided to put a lump sum into this fund.”
She says one of the problems with taking an SRI approach is to get sufficient diversification. “I have tried to balance UK and more global investments. But I don’t want to invest in three funds which all invest in pretty similar companies. I know there are a couple of bond funds out there that also take a SRI approach.
“This might be something I look at for future investments. But as I’m investing for the longer-term I am not sure if this will deliver sufficient returns.”
