With climate change hitting the headlines every other day, ‘green’ investing is drawing plenty of attention – but can it pay? The answer is yes, if you pick the right fund. Over the past three years, Aegon Ethical Equity fund has returned 86.5% against 58.9% for the UK All Companies average, making it one of just five ethical funds in the sector’s top quartile. And there may be more to come – manager Audrey Ryan believes green stocks are set for a strong year-end.
Ryan’s fund is based on “dark green” ethical criteria: as well as avoiding obvious ethical no-nos, such as tobacco or weapons manufacturing, she will not hold firms involved in animal testing or gene patenting. This strict screening process rules out many blue chips, meaning the fund has more exposure to small- and mid-caps than most of its peers – around 60% against a sector average of 17%. But that doesn’t mean stocks are effectively picked by a process of elimination: Ryan says she can still invest in 32% of the FTSE All Share.
One particularly profitable sector for the fund has been support services. “The Government has committed £12bn to social housing,” Ryan tells Investment Week. “My investments in [social housing specialists] Connaught and Mears play on that initiative.” She is also upbeat on the long-term outlook for commodities, amid strong growth in China. The fund invests in stocks exposed to precious metals and Ryan believes there is “further upside” for its holdings in miners Xstrata and Lonmin.
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Aegeon Ethical Equity fund top ten holdings
Name of holding % of assets
Vodafone 4.2
HBOS 3.4
Xstrata 3.0
BG Group 2.9
Prudential 1.9
Scottish & Southern Energy 1.8
Homeserve 1.6
Inchcape 1.5
Victrex 1.5
Man Group 1.5