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Aegon Ethical Equity: August 2022 fund update

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 is an experienced fund manager who is passionate about ethical investing
  • This exclusions-based fund avoids companies such as tobacco and alcohol producers
  • We think she's one of few fund managers who have handled the constraints of an ethical fund well over the long term
  • This fund features on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

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


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 since 1999 and is a passionate ethical investor. We think she's one of few fund managers who have handled the constraints of an ethical fund well over the long run.

Ryan's experience and longevity at Aegon mean she's co-manager on some other funds including the Aegon Ethical Cautious Managed Fund, Aegon UK Sustainable Opportunities Fund and an ethical pooled pension fund. She also supports the managers of the Aegon Global Sustainable Equity Fund and is the dedicated back-up manager for the Aegon UK Smaller Companies Fund. We think this workload is manageable for someone of her calibre. She's also got the support of the broader Aegon UK Equity team, including the fund's back-up manager Elaine Morgan.


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. 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. The most recent results in 2021 indicate strong support for the current approach.

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
  • Genetic engineering - companies that have patented genes
  • 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 10% 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

After this screening, 46% of the companies in the FTSE All Share index remain investable options for the fund. Of these, 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 its worth, and how it’s been valued in the past.

In recent months, Ryan has made some changes to the portfolio. She added professional services business JTC to the fund given the business’ future revenue visibility and expansion opportunities. Ryan also bought DNA sequencing business Oxford Nanopore with the manager optimistic on the company’s product versatility and increasing commercialisation across a variety of markets. The fund’s investments food and beverage ingredients company Tate & Lyle and designer and manufacturer of healthcare products Renishaw were sold in light of their involvement in animal testing in limited circumstances.

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


For many years, Aegon’s asset management business operated through multiple brands, including Aegon Asset Management in the US, Asia and Continental Europe and Kames Capital in the UK.

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

We typically treat corporate changes with caution, but one year on the changes appear to have bedded in well, although we will continue to monitor this.

We're also mindful that there have been some significant departures from the company in recent times, although none have significantly impacted the UK Equity team, which has remained stable. We continue to monitor the situation closely and will write to investors if our views change.

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 companies that lead the way in governance and sustainability can outperform over the long run.

Aegon (formerly Kames) has a rich heritage in responsible investment, having had ethical and sustainable funds as part of their fund line up for more than thirty 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 policy positions on several controversial areas are available on their website, and they take a tougher stance than many of their peers. For example, thermal coal producers and oil companies, dependent on oil sands extraction, are excluded from all Aegon funds because they are vulnerable to climate change regulation and the risk of stranded assets. Firms that make more than 5% of their revenues from tobacco, and those involved in controversial weapons are also excluded.

The firm produces an annual Responsible Investment 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.


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. The HL platform fee of up to 0.45% per year also applies.


44 of the UK's 100 largest companies are excluded from the fund's investment universe for ethical reasons. The fund therefore has a long-term bias towards higher-risk small and medium-sized companies. A focus on small and medium-sized companies can cause more volatility and they 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 its performance can differ to that of more conventional UK equity funds.

Ryan has done a good job over the long term, outperforming the FTSE All Share index since she became manager of the fund in 1999. Over the last 12 months the fund has delivered a return of -15.95%* to investors, significantly behind the FTSE All Share index’s return of 5.51%. The fund’s performance has suffered because of a few factors. The screening process and subsequent exclusions mean the fund has little invested in sectors like energy, basic materials and health care which have been among the better performers over the last year. Remember past performance is not a guide to the future and this is over a relatively short period.

The fund invests more than the index in sectors like technology, consumer discretionary and industrials. This gives the fund a growth tilt which has been unhelpful in a period when value stocks have enjoyed better performance. The fund’s larger exposure to small and medium sized companies has also been a detractor given that larger companies outperformed their smaller peers over this period.

At a stock level, investments in identity data services business GB Group and industrial software company AVEA Group were among the worst performers. Not all of the fund’s holdings lost money over this period though. Information and analytics provider RELX and energy company SSE were among the better performing investments over the period.

Although it’s been a difficult year for investors in the fund, we aren’t surprised that the fund has underperformed over the last year because of the way it invests. Overall, Ryan has done well over the long term and we think she has the potential to do a good job for patient investors in the future, although there are no guarantees.

Annual percentage growth
July 17 -
July 18
July 18 -
July 19
July 19 -
July 20
July 20 -
July 21
July 21-
July 22
Aegon Ethical Equity 7.00% -3.81% -3.39% 31.68% -15.95%
FTSE All-Share 9.15% 1.27% -17.76% 26.64% 5.51%

Past performance is not a guide to the future. Source: *Lipper IM to 31/07/2022.

More information on Aegon Ethical Equity, including charges

Aegon Ethical Equity Key Investor Information

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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