Ethical indices beat mainstream peers in US and UK

Outperformance is driven by avoiding oil and mining sectors


Joe McGrath

Ethical benchmarks have outperformed their non-ethical counterparts in both the UK and US over the past 10 years, according to data from Willis Owen.

Over the 10 years to 3 October 2019, the FTSE4Good UK index delivered total returns of 125%, compared to 118% generated by the FTSE All Share index, data from Willis Owen and FE Analytics showed.

In the US, the FTSE4Good US index delivered a 373% total return over the same period in pounds sterling, beating the S&P 500 index total return of 321%.

Ethical equity indices have beaten their mainstream peers in the UK and US over over one, three and five years as well.

Adrian Lowcock, head of personal investing at Willis Owen, attributed the outperformance to the oil and mining sectors.

He said: “Much of this has been driven by oil and mining sectors, which have suffered over the last few years amid falls in the oil price, and more recently the Tobacco sectors. Many ethical funds have no exposure to these areas and therefore have protected investors from the falls.

“The larger gap for the US market can be explained by a strong performance in the technology sector in recent years.”

Willis Owen said statistics from the Investment Association showed funds with ‘ethical’ mandates totalled just £20bn, up 17% in a year and representing 1.6% of total industry assets.

Lowcock added that while the uptake of specific ethical funds remained low, there has been a significant change in attitude among professional investors.

He said: “It is no longer just about avoiding certain types of companies or accepting a lower rate of return because of your morals.

“The evidence is growing that companies which behave responsibly and incorporate environmental, social and governance principles into their businesses are better custodians of capital, and in turn provide better long-term returns for investors.”

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