Aegon Ethical Equity: July 2026 fund update

• Audrey Ryan is an experienced fund manager who is passionate about ethical investing

• This fund invests in UK companies using an 'exclusions-based' approach, avoiding companies involved in activities deemed unethical

• We think that Ryan handles the constraints of managing an ethical fund well and has the potential to do a good job for patient investors

• This fund currently features on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The Aegon Ethical Equity fund aims to provide a combination of income and capital growth over the long term by investing in companies that meet its ethical criteria.

We think that the fund could be a good addition to the UK section of an ethical portfolio, designed to limit or exclude investments in industries that some find immoral, such as tobacco or alcohol. The fund could also be used by investors who want to add an ethical element to their broader investment portfolio. Ethics are personal, though, so make sure you’re happy with the fund’s approach before investing.

Manager

Audrey Ryan started her career as a UK smaller companies portfolio manager at General Accident, before moving to Aegon (previously Kames) in 1997. She began managing the Aegon Ethical Equity Fund in 1999 and is a passionate ethical investor. We think she's one of only a few fund managers who have handled the constraints of an ethical fund well over the long run.

Ryan's also a co-manager on the Aegon Ethical Cautious Managed Fund. We think that this workload is manageable for someone of her calibre.

There have been some changes to the wider team that help Ryan manage the fund. Emma Hall joined the team at the start of 2026, and more recently she has become the co-manager of the fund. Although changes in the team can cause disruption, our conviction in the fund is centred on Ryan’s experience and continued involvement as manager.

Process

This fund invests in UK companies using an 'exclusions-based' approach, so it doesn’t invest in companies involved in activities deemed unethical. The UK stock market is filtered for these ‘sin stocks' by Aegon's ESG Research Team. The screening process is kept separate from Ryan and the rest of her team, leaving them free to focus on stock selection and portfolio construction and to provide some independence and credibility to the screening process. The ethical screens are reviewed every two years following an investor survey. In the past, findings from the survey have influenced the team to change their stance on matters such as oil and gas, removing the sector entirely from the fund.

Below is a more detailed list of the type of companies that the fund won’t invest in:

• Animal welfare - companies that provide animal testing services, make or sell animal-tested products, are involved in intensive farming, operate abattoirs or slaughterhouses or sell meat, poultry, fish or dairy

• Military - companies that make armaments, nuclear weapons or similar strategic products

• Nuclear power - companies that provide important services to, or own or operate, nuclear facilities

• Environment - companies that excessively damage the environment, in breach of internationally recognised conventions on biodiversity or not tackling climate change

• Political donations - companies that have made political donations in excess of 1% of revenues in the past 12 months

• Gambling - companies with investments in betting shops, casinos or amusement arcades which account for more than 10% of their total business

• Alcohol - companies where more than 10% of their total business involves brewing, distillation or sale of alcohol

• Tobacco - companies where more than 5% of their business involves growing, processing or selling tobacco

• Pornography - companies that provide adult entertainment services

• Banks - corporate or international banks with exposure to large corporate or Third World debt

• Oppressive regimes - companies operating in countries with poor human rights records or with no established policies on human rights issues

Of the stocks that make it through the ethical screening, Ryan wants to invest in companies benefitting from structural changes in the economy. An important part of the fund's investment process is meeting with company managers. These meetings allow Ryan and her team to build a deep understanding of each business and the challenges and opportunities it has ahead. They will also consider how the stock’s valuation compares to what their analysis suggests that it's worth and how it’s been valued in the past.

Over the last 12 months, Ryan has made some changes to the portfolio. She has sold financials company Foresight, recruitment company PageGroup and accountancy software company Sage.

On the other hand, Ryan has also made a number of new investments. These include telecommunications company Vodafone, engineering company Spirax and financial company St James’s Place.

Culture

Aegon’s asset management business has operated through several brands, including Aegon Asset Management, then Kames Capital, and is again known as Aegon Asset Management.

In September 2020, Aegon completed an integration process that allowed the former Kames Capital business to leverage the expertise and research capabilities of the broader Aegon group. As well, Aegon benefited from Kames’ expertise managing ethical and sustainable funds. The Kames Capital brand was then retired.

We typically treat corporate changes with caution; however, we believe that the changes are now well embedded. We're also mindful that there have been a number of departures from the company in recent years in both the UK and Global equity teams. We continue to monitor the situation closely.

ESG Integration

After the extensive screening approach has narrowed the fund’s investable universe, Ryan and her team aim to identify and understand the main Environmental, Social and Governance risks of each company, industry and sector they invest in. They believe that companies that lead the way in governance and sustainability can outperform over the long run.

Aegon has a rich heritage in responsible investment, having had ethical and sustainable funds as part of its fund lineup for more than 30 years. Fund managers across the firm see it as their responsibility to encourage companies to maximise investment returns through good governance practices and respect for the environment and society.

The firm’s position on several controversial areas can be found in its Responsible Investment policy. Companies that derive more than 10% of their revenues from the exploration, mining, and refining of thermal coal are excluded from all Aegon-managed funds, and this threshold will reduce to near zero by 2030, in line with Aegon Group’s Responsible Investment Policy. Companies involved in controversial weapons, or that earn more than 5% of their revenues from tobacco, palm oil production/ distribution, oil sands or arctic oil & gas exploration are also excluded. Finally, Aegon funds don’t invest in companies believed to systematically breach human rights, and Russian and Belarusian companies are not considered.

The firm produces an annual Responsible Investment and Stewardship report, which goes into detail about its ESG processes and provides a full breakdown of the firm’s voting activity, as well as engagement case studies. The team also produces a range of articles on responsible investment, which can be accessed via their website.

Cost

This fund has an ongoing annual fund charge of 0.77%, but a discount of 0.15% is available for HL investors, which reduces the charge to 0.62%. The fund discount is achieved through a loyalty bonus, which could be subject to tax if held outside an ISA or SIPP.

Our platform charge of up to 0.35% per year also applies, except in the HL Junior ISA, where no platform charge applies.

Performance

Given that a number of the larger companies in the investable universe are excluded for ethical reasons, the fund has a long-term bias towards higher-risk small and medium-sized companies. A focus on small and medium-sized companies can increase risk, and these companies tend to rely more heavily on the health of the UK economy. This, combined with the fund's lack of exposure to industries like oil & gas and tobacco, means that its performance can differ from that of more conventional UK equity funds.

We think that Ryan has done a good job for investors over the long term. She is marginally behind the FTSE All Share index since she became manager in January 1999. Over this period, the fund has delivered returns of 418.07% behind FTSE All Share index return of 432.12%. She is also behind the IA UK All Companies sector average, which returned 429.01%. Past performance isn’t a guide to the future. That said, for most of this period, she has been ahead of both the benchmark and peers, although in recent years, the fund has had periods of weak performance.

Since the beginning of 2025, the fund has delivered a return of 2.52%, lagging the FTSE All Share Index return of 32.97% and the IA UK All Companies sector average which returned 20.92% During this period, the fund's ethical investment style has been out of favour. Many sectors that Ryan excludes under the fund's investment policy have performed strongly, including oil & gas, defence, mining, tobacco, and certain banks such as HSBC.

At the same time, a number of companies held within the portfolio have struggled. This includes several companies that investors perceive to be potential losers from advances in artificial intelligence, where their business models are viewed as being under threat. Examples include financial services companies London Stock Exchange Group (LSEG) and ICG, as well as the consumer review platform Trustpilot.

Remember: different investment styles come in and out of favour and it's important to maintain a diversified investment portfolio, spread across different geographies and investment styles.

It hasn’t all been bad for Ryan: since January 2025 a number of companies have also performed well. This includes industrial company Diploma, manufacturing and research company Oxford Instruments and UK bank NatWest.

Overall, we think that Ryan is an excellent investor who has handled the constraints of managing an ethical fund very well over the long term. We think that she will continue to do a good job for patient investors in the future, although there are no guarantees.