Discover what shares one Fool wouldn't buy and whether ethical investing cost him money.
"Those are my principles. If you don't like them I have others." Groucho Marx
Some investors would sooner use battery acid as a mouth gargle than buy shares in a tobacco firm. Others couldn't care less if a company makes wigs for dictators from kittens' tails so long as the dividend yield is good. So does it pay to be flexible like Groucho Marx or would you do better being an ethical investor?
When I see a company I really want to buy on the numbers but whose business I find objectionable I feel like a dieter staring into a cake shop window. My investing juices are flowing but after one last look I walk down the street. Virtue may be its own reward but I like cash too. How would I have done if I wasn't such an investing prude?
Here are some companies I would have bought if I didn't have such a sensitive disposition:
Company | Business | Date | Price then (p) | Price now (p) | Gain |
|---|
CentaminEgypt
(LSE: CEY)
| Gold miner with acreage in Egypt* | 21 April
2005 | 15 | 28 | 87% |
Molins
(LSE: MLIN)
| Supplies packaging machinery for tobacco industry | 14 Feb
2002 | 284 | 113.5 | -60% |
Aminex
(LSE: AEX)
| Oil company exploring in North Korea* | 1Mar
2005 | 12 | 26.75 | 123% |
Homebuy
(LSE: HBG)
| Sells TVs etc. on credit at 29.9% APR | 24 May
2005 | 143 | 207.5** | 45% |
Invox
(LSE: INX)
| Home gaming (premium rate 'phone calls) and broadband supplier | 15 Aug
2005 | 119 | 31 | -64% |
Cattles
(LSE: CTT)
| Sub-prime loans | 27 July
2004 | 300 | 333 | 11% |
British American Tobacco
(LSE: BATS)
| Cigarette manufacturer | 30 May
2003 | 655 | 1445 | 121% |
* I have a strong aversion to repressive regimes.
** Price before suspension on 10/08/2006 due to finance problems.
The average gain is 38% which is a very good return, but before you sell your both grandmas to buy shares in the Discount Land Mine Warehouse, bear in mind that this is not a large enough selection to be statistically significant. What's more, Homebuy will very likely fall when the shares resume trading and might even go bust.
Ethical funds
Studies by the Cooperative Insurance Society in 2002 and ABN Amro Asset Management in 2001 found that excluding shares on ethical grounds did not worsen fund performance. An analysis in 2005 of three hundred Australian companies by AMP Capital Investors found that the more responsible ones delivered a 4.8% outperformance over four years and 3% over ten.
On the other hand the global FTSE4Good Index has underperformed the FTSE All-World Index by 12% over five years as this chart shows. Both the FTSE4Good Index and ethical funds look in detail at companies' corporate governance, local responsibility as well as the broad brush issues that are a red light for me. Some might wonder why I have shares in the copper miner Vedanta
(LSE: VED)
, whose mines are detrimental to the local environment. They do however provide employment and tax income to poorer countries, and how can we do without copper or its alternatives?
Much as I'd like to I can't show that putting on a financial halo will hike your returns. However some things are more important than money so do make a conscious decision when you invest.
Alun owns shares in Vedanta
More:List of ethical funds
