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MARKET COMMENT
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Market statistics suggest ethical investing produces average returns. The FTSE4Good index provides good evidence. Introduced in mid-2001, it was designed to measure the performance of UK companies that meet 'globally recognised corporate responsibility standards'. Firms included have to measure up to various environmental, stakeholder relationships and human rights criteria, while an involvement in tobacco, weapons and nuclear power gives an automatic exclusion. Though the FTSE4Good index now has over 300 constituents, it has lost 17.2% of its value since inception. The FTSE 100 on the other hand has lost 16.8% over the same timescale. That said, there are some ethical outperformers around. One of the best has been the Stewardship Fund run by F&C Asset Management (LSE: FCAM). Launched in 1985, it claims to be the country's first socially responsible investment fund and has turned £1,000 into a respectable £1,723 since 1994. Another leader is the Norwich UK Ethical. It has been a top-quartile performer in the past one, two and three years, and has actually made money -- albeit £55 on a £1,000 investment -- during what has been a very tough last five years for equity investors. Interestingly, the largest reported holding of both the Stewardship and Norwich funds was Vodafone (LSE: VOD). Of course, the usual caveats apply with ethical funds as they do with all other managed products. Past performance is no real guide to the future, with survivorship bias and luck playing some part in the historic statistics. Running at 5%-plus, some of the initial charges levied by ethical funds may seem a little unethical, too. The other specific point to watch out for is the level of ethics employed by the manager. Take the Allchurches Amity fund, which claims to invest in companies that 'value a positive contribution to the quality of individual and community life'. Despite the home credit sector being at the centre of an Office of Fair Trade investigation, with allegations of charging excessive rates of interest to those on very low incomes, Amity's fourth largest holding is Provident Financial (LSE: PFG) -- the UK's dominant doorstep moneylender! More: FTSE4Good | F&C Stewardship | Norwich UK Ethical | Ethical Investors Group
Data within the October edition of Money Management supports the view that ethical investing is generally no better than blindly holding an index tracker. Of the fourteen UK-focused ethical funds in operation for more than five years, only half have beaten the FTSE 100 since September 1999. Of the seven ethical funds existing for more than ten years, just two have kept pace with the blue chip benchmark.