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Sustainable trackers – where two of the investing world's biggest trends collide

More than a quarter of money managed around the world is now invested with environmental, social and governance (ESG) factors in mind. We look at two simple ways to invest.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

The number of HL clients with tracker funds in their portfolio has more than doubled over the past five years.

It's easy to see why investors like them so much. They're a simple, low-cost way to get broad exposure to share and bond markets. They don’t try to beat the performance of the broader market. Instead, they aim to track its performance over the long term.

Another theme hitting the investment headlines is responsible investing. Awareness campaigns like David Attenborough's Blue Planet II documentary series have thrust climate issues into public consciousness. We're more aware than ever about the impact our actions have on the planet.

The government recently introduced plans to cut greenhouse gas emissions to 'net zero' by 2050. That means emissions will have to be avoided completely or – if that's impossible – offset by planting trees or sucking CO2 out of the atmosphere.

Investments through a screen

Professional investment managers are taking note. More than a quarter of money managed around the world is now invested with environmental, social and governance (ESG) factors in mind. That includes some of the world’s biggest investment funds like Japan’s Government Pension Investment Fund (GPIF) and the Dutch pension fund (ABP).

Responsible trackers are where these two trends collide.

There are two main approaches tracker funds can take to invest responsibly.

  • Some track an index like the FTSE4Good, which doesn’t include companies involved in tobacco production, weapons manufacturing, and the coal power industry. This means the fund manager won’t make any decisions on which companies are and aren’t included in the fund.
  • Others track an index that hasn’t been screened, like the FTSE All-Share, but only invest in companies that meet their responsible criteria.

We look at two responsible trackers in more detail below. There are lots of trackers out there and they all do different things so it’s important to check each one invests in a way you’re comfortable with. For more information on how a tracker invests, you'll need to read its prospectus.

This article isn’t personal advice. If you’re not sure an investment is right for you seek advice. All funds will go down as well as up in value so you could get back less than you invest.

Legal & General Ethical Trust

The Legal & General Ethical Trust invests in FTSE 350 companies that meet a range of ethical and environmental guidelines set by Ethical Investment Research Services (EIRS).

Companies are excluded from the fund if they're substantially involved in any of the areas in the table below. The fund then aims to track the performance of the remaining companies.

  • Animal testing
  • Companies with poor health & safety records
  • Countries with poor human rights records
  • Gambling
  • Intensive farming
  • Military
  • Non-sustainable timber
  • Nuclear power
  • Ozone depleting chemicals
  • Pornography
  • Tobacco
  • Water pollution

The fund currently invests in the shares of 208 companies. Some of the UK's biggest businesses – like Royal Dutch Shell, Diageo and British American Tobacco – are excluded on ethical grounds. That means we'd expect it to perform differently to the FTSE 350 and the broader UK stock market.

It's managed by a team we hold in high regard though and we think it has the potential to do well over the long term. The fund can use derivatives, which adds risk. It's got a low ongoing fund charge of 0.31%, in addition to the HL platform charge maximum 0.45% p.a.

Annual percentage growth
Jun 14 -
Jun 15
Jun 15 -
Jun 16
Jun 16 -
Jun 17
Jun 17 -
Jun 18
Jun 18 -
Jun 19
Legal & General Ethical 12.4% -7.7% 18.3% 7.0% 1.5%
FTSE 350 (excluding investment trusts) 2.2% 2.3% 17.5% 9.0% 0.5%

Past performance is not a guide to the future. Source: Lipper IM to 30/06/2019

More on this fund including charges

Legal & General Ethical Key Investor Information

Legal & General Future World Climate Change Equity Factors Index

This fund tracks the FTSE All-World ex CW Climate Balanced Factor Index and provides exposure to more than 1,900 companies across the globe.

The index excludes companies that produce controversial weapons such as cluster munitions, anti-personnel mines, chemical or biological weapons. It's built in a way that gives greater weight to companies that score well on four factors: value, quality, low volatility and small size.

The index also gives greater weight to companies that produce goods, products or services that help to address the impacts of climate change, resource depletion and environmental erosion. Meanwhile exposure is reduced to companies that produce fossil fuels or emit high levels of CO2.

Legal & General are experienced tracker fund managers but investments in smaller companies and emerging markets, combined with the managers' flexibility to use derivatives, add risk. The index tracked by the fund looks very different to the broader global stock market so we'd expect it to perform differently too.

The fund's ongoing charge is 0.30%. The HL platform charge maximum 0.45% p.a. also applies.

Annual percentage growth
Jun 14 -
Jun 15
Jun 15 -
Jun 16
Jun 16 -
Jun 17
Jun 17 -
Jun 18
Jun 18 -
Jun 19
Legal & General Future World Climate Change Equity Factors Index n/a n/a n/a n/a 9.0%
FTSE All-World ex CW Climate Balanced Factor Index 10.3% 18.3% 20.2% 8.0% 10.5%
FTSE All World 10.2% 14.0% 23.0% 9.4% 10.1%

Past performance is not a guide to the future. Source: Lipper IM to 30/06/2019 N/A = data for this time period isn’t available.

More on this fund including charges

Legal & General Future World Climate Change Equity Factors Index Key Investor Information


Read more on ethical investing


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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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