Investing in Chocolate or Celery

Imagine a stomach-rumbling afternoon toss-up between a chocolate bar and a stick of celery: you know one is unhealthy, but you fear the other will leave you starving hungry. Ethical investing is similar. It threatens to do too little to line a profit-hunters’ stomach, but will probably do more good in the long-term.

Taking a look at figures from data analysts Morningstar and FE Trustnet: alternative energy funds have plummeted 32 pc on average over the past three years. That means each £1,000 has turned into £680 before charges. The top fund SAM Smart Energy CHF, which invests in companies from Brazil to Korea, has lost 15 pc. In contrast, the average ordinary fund backing global shares has grown 22 pc. The top performer, Fidelity Global Consumer Industries, is up 55 pc, turning £1,000 into £1,550 before charges.
The figures are slightly better on the larger ecology funds sector. These funds invest in companies which promote a cleaner environment. Alongside alternative energy, pollution control and water treatment qualifies. Here, the best fund – Jupiter Responsible Income – has returned 29pc over three years, turning £1,000 into £1,290. The average fund has fallen by 2.92pc.
You can cut this data how you like, but for most of us the green funds dilemma usually ends in the predictable empty Snickers wrapper.

Ethical fund fans often suggest looking over the longer term. Bet on the future of the  global economy, they say. Hold for 10, 15, 20 years to see the full benefit. The argument is based on fairly sound predictions. Economies in Asia and around the world may well have to turn to alternative energy if oil, gas and other fossil fuels start to run dry. That will naturally boost companies who making the early running in developing wind, wave, and other renewables. Sceptic or environmentalist, there’s an unproven risk that global warming is on the march, which adds to theory behind this long-term punt.

But two decades is a long time to wait. Especially if you’re betting a large chunk of money. That’s why green or ethical funds are still something to back primarily because you believe in the need to divert money away from companies with eyes glued on the dollar signs and into something more positive.

There’s nothing wrong with that – some of the biggest ills in the modern world have been caused by a narrow focus on profit at any cost. But it must come under the proviso that you get some sort of return on your investment. Today’s statistics paint a picture of ethical funds which is more doom and gloom than a glimpse of the next big boom. That might well change in the coming years, but it’s important to be under no illusions: ethical funds have a sluggish record.

Dan Hyde, Money Mail reporter