Ethical investing — profitable peace of mind
You’re free to invest funds any way you see fit — provided the sectors and mechanisms you choose are above board.
And traditionally, industries like Big Tobacco, Big Pharma and Oil and Gas have built a reputation as big earners.
But as some investors become more attracted to transparent social and environmental themes, there’s been a trend towards socially responsible investing (SRI).
The big picture is that ethical investment specialist Triodos Bank predicts that the UK market for SRI will grow by 173% to reach £48 billion by 2027 and 19% of UK investors are currently planning to invest in an SRI fund.
(Source: triodos.co.uk)
So if you want to find out if it’s possible to cash in from funds that chime with your conscience, read on.
CAPITAL AT RISK — The material on this site is for information purposes only. Please ensure that you clearly understand the nature of any investments described and the potential risks relevant to them. Past performance is not a reliable indicator of future performance and the value of an investment and the income received from it can go down as well as up.
How does it work?
As an individual or organisation, you may decide that the funds you invest in must meet certain ethical criteria — for instance, you might sift out any organisations involved in pornography or the production of firearms or fossil fuels. A good example of this exclusionary screening would be a cancer-related charity that doesn’t want to invest in tobacco stocks.
But as well as ruling out what you don’t want, you might want to screen positively and specify the types of industries you do want to include in your portfolio, so that your portfolio is potentially more proactive in advancing the causes you champion.
Examples
Several pooled investment funds can have ethical investment mandates, including:
- Unit trusts — open-ended funds shared by many different investors which increase as more people invest and shrinks as people withdraw. They’re divided into units which investors buy.
- Investment trusts — are also listed on the London Stock exchange and they invest in other companies. They’re ‘close-ended’ as they have a set number of shares and this isn’t affected by the number of investors at any given time.
- Open Ended Investment Companies (OEICs) — OEICs are companies that manage funds and have shares listed on the stock exchange with prices based on the fund’s assets. They’re open-ended because they can issue or eliminate shares to alter the amount in the fund.
But according to Ethical Consumer, you need to be sure that any ethical investment funds are fully transparent about their shareholdings and follow stringent investment criteria, that the company behind the fund doesn’t run conventional mainstream funds that contravene your values and crucially, that its financial performance over the past 5 years is robust.
(Source: ethicalinvestment.org)
Does it make money?
In the past, a perceived lack of depth and diversity in ethical markets meant they weren’t regarded as profitable as their mainstream counterparts.
But the right SRI can be profitable — according to Wealth in Asia, a sum of US$10,000 invested in the ethically-focussed Parnassus Fund at its inception in 1984 would have expanded to US$253,936 by the end of 2017. And over a ten-year timeframe, the 10.7% return generated by this fund exceeds the S&P 500’s 8.5%.
(Source: wealthinasia.com)
Next steps
Ethical investment appeals across the spectrum and is accessible for all sorts of diverse investors — from those with £5000 to spend wisely to large bespoke funds dealing in millions or more.
If you’re enthused about SRI funds, Chancellor Financial Management has a wealth of experience that will help you launch your ethical investment journey — and make money while satisfying your conscience.
Profitable peace of mind is possible, so contact us soon for a chat about getting started.
Call us on 01204 526 846 for more information on values-based investing.
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