Here we can see that the objective affords the fund a certain degree of flexibility when it comes to diversification and investing in growth stocks in a range of markets.
The success of ethical and sustainable funds in the latest Crown Ratings rebalance comes largely at the expense of ‘non-sustainable’ asset classes.
Global lockdowns – and wider geopolitical events – saw the price of oil collapse in much of 2020, meaning that funds holding positions in energy companies have struggled. With global travel falling to a historic low, this problem has only been exacerbated.
Added to this, traditional equity investments have also had a tumultuous time. While US equities have largely boomed, thanks in no small part to high-growth technology stocks, other equity markets and particularly equity income funds have suffered as dividends have been curtailed.
Several funds unfortunately lost their five-Crown rating in this latest rebalance and, while certainly not the only one to have done so, Valu-Trac’s Equity Income fund is a good example of the knock-on effect of struggling equity markets on fund performance, as the chart below shows.
As we can see, the fund has lagged behind its IA Unclassified sector benchmark, losing more than 10 per cent of its value in the past 12 months.
For comparison, the chart also shows the performance of the sustainably-positioned Federated Hermes’ Impact Opportunities Equity fund.
At the time of writing, the impact of the Covid-19 pandemic continues to be felt and is likely to be felt well into the year ahead.
While the conditions for ethical and sustainable funds (growing interest, better classification, new regulations) are set to improve, for traditional stocks, the picture appears to be the same as before.
As the evidence becomes clearer that investors do not necessarily have to sacrifice returns for their principles, fund groups will increasingly direct their efforts and resources into making their investments more sustainable in the long term.
Charles Younes is research manager at FE Investments
