A GUIDE TO ETHICAL INVESTING

Shares in small companies can sometimes be more volatile than those of larger companies. For this reason ethical funds are often perceived as being a riskier investment than their non-ethical counterparts.  However, as with all equity funds, the price of *units* can go down as well as up and there is always *risk* in the short term, so you should be looking to invest for the long term - 10 years or more.  Investing ethically does not necessarily lead to poor performance. The performance of ethical funds is just as reliant on good management techniques as that of conventional funds.

You should be aware that past performance is no guide to the future and you may not get back the full amount invested. The value of investments can go down as well as up as a result of both market movements and exchange rate fluctuations. Performance should not be your only consideration when choosing a fund. If at any time you are unsure if an investment is suitable for you, you should contact an authorised *financial adviser*.

Funds with a strict criteria, also known as ‘dark green’, may be limiting their performance. For example, strict ethical screening can exclude whole industry sectors from investment. This can mean that you may miss out on the gains from this sector during periods of high growth. Some funds adopt a ‘best of sector’ or ‘light green’ approach. These funds may invest in larger companies often shunned by traditional ethical funds. This removes some of the risk associated with investing mainly in smaller companies. It is important to achieve a balance between your ethical and investment objectives.

Ethical investment funds were first introduced in the UK in 1984. This means that you will be able to look at a track record for many of these funds in order to assess their past performance; the performance period available will vary as it depends on when the fund was launched. It is important to remember that past performance is not a guide to the future and should not be the only consideration when choosing an investment.

The chart below shows how a lump sum of £1,000 would have performed if it had been invested for 1,3, 5 and 10 years in different investment fund sectors.

Source: Lipper Hindsight 5.  Figures based on a bid to bid basis with net income reinvested. Initial charges are not taken into consideraton when calculating total return. Data is to 31st August 2009.

The chart demonstrates that stock market based investments should be considered as longer term investments.  Over this particular time period there is little difference between 5 and 10 year returns due to the impact of the credit crunch and subsequent market downturn.

However, had you invested in a regular savings plan of £50 per month you will see that your 10 year return would have been better than over 5 years.

Source: Lipper Hindsight 5.  Figures based on a bid to bid basis with net income reinvested. Initial charges are not taken into consideraton when calculating total return. Data is to 31st August 2009.

These charts show that you don’t necessarily have to sacrifice investment performance when investing ethically. As in every sector some funds perform better than others.