Standard Life UK Ethical Fund Review

Posted: 09 May 2008 by Harriet Meyer

If you're seeking an ethical investment, slotting some money into Standard Life's UK Ethical fund could be the way to go. This is one of an array of 'green' funds which may form part of a principled investment strategy that offers solid returns.

You can choose to wrap it in a tax-efficient individual savings account (ISA) to keep your investment out of the taxman's grasp. Following rule changes this April, you can put up to £7,200 in a stocks and shares ISA each year.

But exactly what makes this particular fund suitable for the ethically minded investor? Well, it's known as a 'light green' fund, investing in the stock market using a mixture of negative and positive screening processes.

This means investing in companies in each sector that score the highest on various social, environmental and ethical criteria. For example, it may pick those companies that have a strong human rights record or make a positive contribution to society and the environment. But dark greenies beware. It may also hold stocks in industries such as banking, drugs and oil -- areas that would be excluded with a more stringent policy.

The good news is that recently the manager took the bold step of excluding airlines from its stock portfolio -- a move that was widely publicised. It was in response to a survey of investors in Standard Life's ethical funds, which showed 30 per cent wanted a complete exclusion of airline stocks.

Furthermore, and contrary to popular belief, you won't be sacrificing returns for taking the ethical investment route. The performance of this fund has been good over one, three and five years, outperforming both the UK All Companies sector and the FTSE 100 index.

For example, if you had invested £1,000 in the fund three years ago, this would now be worth £1,263 after basic-rate tax; or £1,871 after five years. The average ethical fund has returned less, at £1,224 and £1,694 over the respective time periods.

Standard Life invests mainly in UK companies, achieving consistent above-average returns while minimising investment risk over the years. It has an initial charge of four per cent and an annual charge of 1.25 per cent -- which are fairly standard, although less than others in the sector, such as F&C Stewardship Income.

The fund holds a spread of between 50 and 100 stocks in an effort to diversify and reduce risk -- which is good news for cautious investors. And it ensures that stock selection from the restricted number of companies that meet the fund's ethical criteria has a meaningful impact on the performance of the fund as a whole.

If you choose this fund, Standard Life's website enables you to keep up to date with stock choices and performance over one, three and five years so you can follow your investment. But it isn't easy to find the right section of the site -- Trustnet.com is more useful, offering a complete picture by comparing all funds in the ethical sector.