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Aegon Ethical Equity: September 2021 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.
  • This exclusions-based fund avoids companies such as tobacco and alcohol producers
  • Audrey Ryan is an experienced fund manager who is passionate about ethical investing
  • 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 is 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 in 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 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. From tobacco and alcohol producers to munitions manufacturers and companies that use animal testing.

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.

ESG is also key to the fund's investment process. 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 tend to outperform over the long run.

Another 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.

Ryan recently invested in Volution Group, a leading supplier of ventilation products across the UK, Europe and Australasia. Sustainability is a key part of the company’s strategy. It’s set ambitious targets to increase the number of low carbon products sold, and the amount of recycled plastic it uses, by the end of 2025.

Ryan believes the company’s progress on sustainability should help it navigate regulations on CO2 emissions, which are expected to tighten over the coming years. She also thinks the company’s share price is attractively valued in comparison to other similar businesses based across the globe, with plenty of future growth potential, although there are no guarantees.

In contrast, the manager sold an investment in Moneysupermarket.com as the company’s earnings didn’t live up to expectations.

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 of more than £25,000 in the last year
  • 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
  • Debt - banks with exposure to large amounts of corporate or Developing World debt
  • Oppressive regimes - companies operating in countries with poor human rights records or with no established policies on human rights issues

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.


This fund has an ongoing annual fund charge of 0.78%, but a discount of 0.15% is available for HL investors, which reduces the charge to 0.63%. 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. 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.

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. Their performance therefore struggled amid Brexit negotiations and other political uncertainty.

Performance has improved significantly over the past two years though. The manager's investments in the industrials and technology sectors performed particularly well, according to our analysis. A lack of exposure to the oil & gas sector, which performed poorly, boosted performance too. Past performance isn’t a guide to the future.

The fund also benefited from some company-specific success stories, including watch retailer Watches of Switzerland. It performed well as customers snapped up luxury timepieces online with money stored up during Covid-induced lockdowns.

Overall, Ryan has done a good job for investors over the long term and we think this has the potential to continue, although there are no guarantees.

Annual percentage growth
31/08/2016 -
31/08/2017 -
31/08/2018 -
31/08/2019 -
31/08/2020 -
Aegon Ethical Equity 7.7% 6.4% -6.1% 3.0% 32.5%
FTSE All-Share 14.3% 4.7% 0.4% -12.6% 26.9%

Past performance is not a guide to the future. Source: Lipper IM to 31/08/2021.

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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