Responsible investing – the UK funds featuring on our Wealth Shortlist

There’s more choice than ever for investors who care about how their investments impact the environment and society. Responsible investing offers the possibility to make money in a way that’s in line with your views and beliefs and it’s becoming ever more popular.

But 'responsible' means different things to different people. An industry that seems offensive to one person might seem like a necessary evil to others. That’s why you need to understand a fund’s approach and make sure it aligns with your views before you invest.

In this article, we look at the approaches taken by the responsible UK funds that feature on our Wealth Shortlist, of funds selected for their long-term performance potential.

The Wealth Shortlist is designed to help investors build diversified portfolios. To use it, you should be comfortable deciding if a fund fits your investment goals, wider portfolio and attitude to risk. The funds below are provided for interest and are not a recommendation to buy. If you don’t know whether an investment is right for you, ask for personal advice. Investments rise and fall in value so you get back less than you invest.

What funds have we selected on the Wealth Shortlist and how do they compare?

Yields are variable and not a reliable indicator of future income.

How could these funds fit in as part of a portfolio?

While these four funds all mainly invest in the shares of UK companies, they are managed in different ways.

Aegon Ethical Equity

Aegon Ethical Equity aims to provide a combination of income and capital growth over the long term. It only invests in companies that meet its ethical criteria and has the strictest exclusion criteria of our four UK selections. Fund manager Audrey Ryan, wants to invest in companies benefitting from structural changes in the economy.

We think the fund could be a good addition to the UK section of an ethical portfolio, designed to limit or exclude investments in industries some find immoral, like tobacco or alcohol. It could also be used by investors who want to add an ethical element to their investment portfolio.

Ethics are personal though, so make sure you’re happy with the fund’s approach before investing. The fund invests in smaller companies which adds risk.

This fund holds shares in Hargreaves Lansdown plc.

More about this fund, including charges

Key investor information

Janus Henderson UK Responsible Income

Janus Henderson UK Responsible Income aims to provide a good level of income with capital growth over the long term. The manager invests in companies that generate plenty of cash flow and that are attractively valued and aims to hold them for several years.

It avoids companies some may find unethical, like tobacco and oil & gas companies, which are typical for many traditional equity income funds because of their relatively high dividends.

So, the fund could offer some diversification to a traditional equity income portfolio or be a good addition to a responsible portfolio aiming to provide income.

The manager focuses on large and medium-sized companies, but his flexibility to invest in smaller ones adds risk. The fund also takes charges from capital which could boost the income but reduces the potential for capital growth.

More about this fund, including charges

Key investor information

Ninety One UK Sustainable Equity

Ninety One UK Sustainable Equity aims to provide growth in capital and income over the long term while investing in companies the manager believes to be making a positive impact on society or the environment. Manager Matt Evans digs into balance sheet strength, tests the quality of earnings and assesses company management's track record when choosing where to invest.

The fund's positive impact approach makes it different to other funds. This means the fund manager wants to invest in companies making a positive contribution to society, the environment or both, rather than just screening out companies he wants to avoid.

We think the fund could be a good option as part of the UK portion of a responsible investment portfolio. The manager invests in smaller companies and has the flexibility to invest in derivatives which adds risk.

More about this fund, including charges

Key investor information

Troy Trojan Ethical Income

Troy Trojan Ethical Income aims to provide a rising income and the potential for capital growth over the long term, while also attempting to minimise losses in a falling market. The manager looks for resilient and high-quality companies that can withstand times of stock market stress.

The fund’s ethical approach makes it different to many other income funds. The manager doesn’t invest in areas deemed unethical, like tobacco and fossil fuels. Some of these areas are often well-represented in traditional income funds without an ethical tilt, so we think this fund could bring diversification to an income-focused portfolio.

It could also be a good conservative addition to a responsible investment portfolio built to provide income.

The fund is relatively concentrated, and the manager has the flexibility to invest in derivatives and invest in smaller companies, which adds risk. The fund takes charges from capital which could boost the income but reduces the potential for capital growth.

More about this fund, including charges

Key investor information

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