Kames Ethical Equity Fund Class A Accumulation Units

Audrey Ryan, manager of the Kames Ethical Equity Fund (formally Aegon), is expecting a slow economic recovery in the West, and therefore developing nations to contribute the majority of global growth. Yet anaemic recovery in the UK needn't be a headwind for all UK-listed stocks. Her portfolio is positioned to benefit from exposure to faster growing emerging markets and important global drivers such as technological or environmental change.

One example is Spectris, a company that makes electronic instrumentation and controls. Its products are used across many industries to help improve productivity and reduce waste, a means by which many manufacturers can save money and grow profitability without increasing sales. Given the muted economic backdrop Spectris is enjoying strong demand for its products. Other internationally orientated holdings include Aggreko, a company providing temporary power generation, Intertek, which provides safety testing services, and Telecity, which operates data centres across Europe where companies can house their IT and internet infrastructure efficiently and securely.

When it comes to domestic-facing stocks Audrey Ryan is more cautious. She has reduced exposure to holdings in recruitment consultants such as Michael Page and is focusing on companies with low levels of debt and whose earnings she believes will be resilient in tough times. Examples include property website owner Rightmove and bus and train operator, Stagecoach, both of whom have been solid performers for the fund so far this year.

Due to the fund's strict ethical criteria, the fund holds no banking, tobacco or pharmaceutical stocks, and has limited exposure to mining and oil and gas. This can often mean periods where the fund behaves differently from others in the UK All Companies sector, and in the second half of this year the fund suffered as lack of exposure to defensive areas such as pharmaceuticals and tobacco exposed the fund to volatility. Additionally, at a stock specific level, Eastern Platinum and Premier Oil both underperformed owing to disappointing production updates. However, lack of exposure to banks was advantageous as the sector was held back by the ongoing sovereign debt crisis in Europe. The fund can invest in smaller company shares, which carry more risk than their larger counterparts.

Although the fund has been through a turbulent time this year, we continue to believe it is a good option for ethical investors for long term exposure to the UK market, and it remains on our Wealth 150 list of favourite funds in each sector. If you are considering an investment please ensure you read the fund Key Features which contain more information on the risks involved.