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Kames Ethical Equity - can you make money investing ethically?

Dominic Rowles | Thu 14 December 2017

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.
  • Audrey Ryan has found many attractive opportunities in the financial services sector
  • A bias towards small and medium-sized UK companies has boosted long-term performance
  • The fund is our favourite way to invest ethically in the UK and retains its place on our Wealth 150

Our view

Investing ethically often involves avoiding certain companies or sectors. These constraints mean striking a balance between investing ethically and delivering strong performance is no easy task. In our view, Audrey Ryan is one of few fund managers who have handled the constraints of an ethical fund well over the long run.

Audrey Ryan has a passion for ethical investing and a strong record of delivering good returns for investors. She has been at the helm of the Kames Ethical Equity Fund for almost 19 years and is supported by a stable and well-resourced team at Kames. The team screens the UK stock market for companies that meet a strict ethical criteria, which leaves the manager free to focus on picking the companies she believes have the best prospects.

In our view, this fund is capable of providing excellent long term returns, although there are no guarantees. The fund retains its place on the Wealth 150 list of our favourite funds in the major sectors.

How is the fund currently invested?

Audrey Ryan has identified a number of themes she expects to come to fruition over the coming years and has invested in companies that could benefit.

e-commerce growth

The manager expects e-commerce will continue to grow strongly in the UK as consumers increasingly use online retailers. An investment in GB Group could be well placed to take advantage of this, in her view. The company helps organisations protect themselves and their customers against online fraud by offering identity verification services.

International exposure

A portion of the fund is dedicated to UK companies with international earnings. The manager believes these companies have the potential to continue to perform well even if ongoing uncertainties within the UK, such as the Brexit negotiations, persist. A new investment in Coca Cola Hellenic, for example, manufactures drinks bottles and distributes them worldwide.

Financials

Audrey Ryan believes valuations in the financial services sector are particularly attractive and the fund’s exposure to the industry has increased this year. She recently made a new investment in Royal Bank of Scotland and added to an existing investment in insurance firm Aviva.

Source: Kames Capital as at 31/10/2017

Performance review

65% of the UK’s largest companies are excluded from the fund’s investment universe on ethical grounds. The fund therefore has a long-term bias towards higher-risk small and medium-sized companies.

Our analysis suggests this has helped the fund outperform the wider UK stock market, the FTSE All-Share, over the long term. An investment of £10,000 made 10 years ago would now be worth more than £20,060 with dividends reinvested. This compares with £17,654 for the FTSE All-Share. Please remember past performance is not a guide to future returns and the value of investments can go down in value as well as up, so you could get back less than you invest.

Kames Ethical Equity: 10 year performance

Past performance is not a guide to the future. Source: Lipper IM to 30/11/2017

The fund outperformed the broader UK stock market this year, helped by a bias towards the strongly-performing support services, electricals and financial services sectors. Shares in transaction processing company Paysafe Group, for example, rallied after the company received a takeover offer. The deal is due to complete by the end of the year.

This strong performance came despite the fund’s lack of exposure to the strongly-performing mining sector. Shares in mining companies are excluded from the fund’s investment universe on ethical grounds.

Annual Percentage Growth
Oct 12 -
Oct 13
Oct 13 -
Oct 14
Oct 14 -
Oct 15
Oct 15 -
Oct 16
Oct 16 -
Oct 17
Kames Ethical Equity Fund 31.7 4.4 12.5 -3.0 14.7
FTSE All-Share 19.8 4.7 0.6 9.8 13.4

Past performance is not a guide to the future. Source: Lipper IM to 30/11/2017

Find out more about this fund including how to invest

Please read the key investor information document in addition to the information above

Please note the fund has a holding in Hargreaves Lansdown plc.

Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.


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