Style Name: Ethically Balanced Funds

Investment funds which apply a combination of negative and positive ethical criteria when deciding where they can or can not invest

Brief description of Style

Ethically Balanced funds combine a wide range of, sometimes complex, positive and negative ethical screening policies as part of their investment strategies and may apply ‘best in sector’ strategies – which means they may invest in most sectors.

SRI approach applied

This is a broad group of funds which is characterised by the consideration of numerous ‘ethical’ or ‘values based’ issues – often as well as environmental and social issues.  Funds of this kind typically consider the ‘pros and cons’ of companies activities to reach balanced, pragmatic stock selection decisions.

Complex criteria are often used to decide whether or not a company is acceptable ‘on balance’. These funds do not necessarily have extensive lists of areas of clear or absolute avoidance (as found with Negative Ethical funds) as their approach is more nuanced.

These funds are often also covered by Responsible Ownership strategies that aim to encourage positive change, particularly amongst companies that may be regarded as ‘borderline’ acceptable.  This may or may not impact investment decision making.

SRI issues covered

Balanced Ethical funds generally research the positive and negative aspects of a wide range of  issues including some or all of the following:

• Traditional ‘ethical’ issues such as: armaments trade, pornography, alcohol production and gambling, animal welfare

• Social issues, such as; health and safety, employment practices and human rights issues

• Environmental issues, such as; pollution, climate change, transport and use of resources

• Governance issues, such as; executive remuneration, board structure, bribery and corruption.

The sectors that are most commonly excluded are tobacco and armaments. Companies with practices of concern may be required to meet certain ‘de minimis’ criteria (eg not exceeding 5% of turnover) if they are to be included in the fund.

The defining features of these funds is that they include ‘ethical’ or ‘values/principles based’ issues as well as social, environmental and governance issues – and that these are considered together in order to make ‘balanced’ investment decisions.

Variation across Style segment

The number of issues covered and the depth of research can vary. This group is characterised by its focus on pragmatic ‘balancing’ of issues. The number of issues considered and the depth of research varies greatly across this Style. Resources levels also vary. Although most make use of external research some funds are supported by significant specialist in house teams, whereas others are not. Many, but not all of these funds, are covered by responsible ownership or engagement strategies.

Impact on investment strategy

Ethically Balanced funds can normally invest across most sectors and are likely to invest in ‘ethical leaders’ or ‘best of sector’ companies in most major industries,  This often includes banking, oil and gas, pharmaceuticals and supermarkets.

Funds of this kind tend to be able to invest in more companies than most Negative Ethical funds and often hold more large cap stocks than more strictly screened funds (and some thematic funds).

Who is this Style most likely to appeal to?

These funds are more suitable for investors who are looking to support, encourage and benefit from investing in companies that are viewed as ‘ethical leaders’ in their respective fields – rather than investors who wish to avoid a wide range of negative activities or support specific themes. Investors should be aware that fund managers views may differ from their own (and are recommended to check fund information).

Associated Styles

These funds often have features in common with Negative Ethical funds, as well as some Environmentally Themed and Sustainability Themed funds.

Associated Jargon

These funds tend to be referred to as ‘ethical’ .  However as their ethical strategies can be complex they should be researched further if a client has a particular area of interest. They are also sometimes referred to as ‘light green’ – although this is somewhat misleading as their core focus is a broad range of issues not simply environmental issues.

Providers

Offered by a range of often well established fund providers.