Which ethical funds are high performers?


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I like to have some say over where my money is invested. I don't want my savings going to tobacco or gambling or big polluting companies.

There is growing evidence that companies with good social, environmental and economic principles are likely to perform better over the long term.

Take the Perpetual Wholesale Ethical Socially Responsible Fund, one of the 40 retail ethical or sustainable funds on offer for investors.

It screens out companies that do not meet its strict SRI and ethical guidelines, such as BHP Billiton, gold miner Newcrest and one of the biggest alcohol retailers, Woolworths.

It is the best-performing Australian shares managed fund over five years, beating all the hundreds of non-ethical Australian share funds with a 15.5%pa return over the past five years until the end of June this year. Over one year it was the second-highest performer with a mighty 36.5% gain.

Responsible investment funds are delivering better returns over one, three, five and 10 years, according to a report by the Responsible Investment Association Australasia (RIAA). The average responsible investment fund gained 21.45% in 2012 compared with 18.14% for the average large-cap Australian share fund.

Over three years responsible funds rose by 2.9%pa compared with 1.66% for large-cap funds, while over 10 years responsible funds returned 11.34%pa compared with 8.2%pa.

There are all sorts of different shades of green investing. Just because a fund uses the term ethical or sustainable or socially responsible doesn't mean they all invest along the same lines, explains Morningstar's communications manager, Phillip Gray.

He recommends investors read the product disclosure statement, website and investment reports carefully, especially the section on how the fund manager chooses stocks, to learn about the fund manager's specific investment policy. "Uniquely in the western world, Australian fund managers are not required to disclose on a regular basis their underlying portfolio stockholdings," says Gray.

Screening investments is one style of ethical investing. Others include targeting investments that solve social and environmental problems, which is what Australian Ethical's funds do so well. The largest style of green investing is funds that take into account environmental, social and governance (or ESG) factors.

Most of investors' money is concentrated in a small number of very large funds from various fund managers including AMP, Australian Ethical, BT, Hunter Hall, Perpetual and SSGA according to research house Morningstar.

Investors pay a bit more for investing in an ethical fund. The current average ongoing fee for these ethical funds is 1.71% while the average for mainstream funds is 1.38%.

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Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She's also author of the best-selling book Women and Money.