Ethical funds are outperforming their traditional counterparts in percentage terms, yet remain a comparatively small segment of the retail funds market despite rising interest in socially responsible investment.
A new survey by financial products comparison website Moneyfacts finds that the performance case for ethical and socially responsible investing (SRI) is strong, with ethical funds outperforming their non-ethical peers over the past five years.
"Given the continued strong performance of many ethical funds, they should be more popular than they are," the report says.
As the chart below shows, over the past year all ethical funds, which include corporate bonds, global funds, mixed investment products and share funds, posted average growth of 16.81% compared with 15.2% for all non-ethical funds.
Over a three-year period, ethical funds recorded 30.42% growth compared with 29.13% for non-ethical funds, and out to five years it was 76.17% compared with 64.14%.
Best performing funds
Over the past year, the best performing ethical/SRI fund was the EdenTree Amity European Fund, posting 33.4% growth, while both Unicorn UK Ethical Income and Standard Life Investments UK Ethical delivered returns in excess of 30%.
Over three years, five ethical funds have recorded growth of more than 50%, the best of these F&C Responsible Global Equity returned 58.4%, while over five years the best is the EdenTree fund posting 122% growth.
Uptake remains low
In spite of the strong comparative performances, the long-held theory that to invest ethically means sacrificing the best returns has held back overall growth in the SRI sector.
Richard Eagling, head of pensions and investments at Moneyfacts said: "Given the strong performance of many ethical funds and the feel-good factor associated with investing with principles, the retail SRI fund sector should have a bigger following."
He added: "It is disappointing that in the 33 years since the first ethical fund was launched, ethical funds still only account for 1.2% of the total assets under management across the entire retail fund universe."