F&C Stewardship Income Fund Review

Posted: 23 January 2008 by Jenny Rhodes

Friends Provident pioneered ethical funds in the UK, launching the first Stewardship series fund (Stewardship Growth) in 1984. Although now the granddaddy of all ethical funds, it didn't have an auspicious start, being nicknamed the "Brazil fund" (you'd have to be nuts to invest in it) -- and certainly not regarded with the respect it is now. The whole sector was seen as a joke, actually.

Despite this, and with two fingers at the critics, Stewardship Income Fund was successful, the second in a series launched after 1987.

Stewardship's focus is income and growth from a portfolio of UK companies, combining negative and positive screening. That basically means it avoids holding in its portfolio companies that are involved in tobacco/alcohol production, gambling, pornography/violent material, manufacture/sale of weapons, or those with poor relations with employees or customers.

It also excludes nuclear power generation, unnecessary exploitation of animals and poor environmental practices. The fund managers are not afraid to divest from contentious sectors and on the environmental front, they notably pulled back from the airline sector in 2004 because of climate change concerns.

But in addition, the fund supports companies with activities that make a positive contribution to society. That means companies that supply the basic necessities of life, improve quality of life through new technologies, offer product choices for ethical and sustainable lifestyles, have good environmental management, actively address climate change, promote and protect human rights, have good employment practices, a positive impact on local communities, good relations with customers and suppliers, effective anti-corruption controls and transparent communication.

But top-ten holdings such as Tesco's and Barclays have caused public criticism and rub us the wrong way, too. Barclays has been criticised for its financial support of depleted uranium weapons manufacturers and Tesco has even created Tescopoly -- its own dedicated campaign movement against its supply chain labour rights abuses, poor treatment of farmers and UK workers, lack of sincere commitment to environmental issues, poor animal welfare standards and monopolisation of the UK high street. Large holdings like these and others mean that Stewardship is really light green.

With an initial charge of five per cent and an annual charge of 1.38 per cent, the fund compares favourably with other UK-invested ethical funds, the majority of which carry an annual charge of 1.5 per cent. There is the odd cheaper fund about, like the Standard Life UK Ethical Fund, which has a lower initial charge of four per cent and an annual charge of 1.25 per cent. Stewardship's minimum investment is £50 per month or a £1,000 lump sum. It's available as both an ISA and a PEP/ISA transfer.

Over the last three years, Trustnet has reported that Stewardship achieved average returns of 43.9 per cent, which although not spectacular has matched the ethical fund sector average. Over the last five years, Stewardship was one of the best-performing ethical funds, ranked sixth overall, and it consistently out-performed the UK Equity Income sector average over that period. All these factors contribute to making the fund a good and consistent performer to have in your portfolio.

Overall, Stewardship is a good introduction for any ethical investor. It's screened on a broad range of ethical issues, but doesn't take such a radical approach that newcomers to the sector will be scared off by. Its long history, experienced investment team and consistent returns make it a solid part of any ethical portfolio.