UK equities have gone through a rough few weeks and the turmoil looks far from over, but our data shows that funds with an ethical remit have been posting lower losses than their typical peer.
Ethical funds in the IA UK All Companies and UK Equity Income sectors have tended to hold up better than the index and their average ‘go anywhere’ peer in the recent correction, according to FE Trustnet research, as their structural underweights to mining and materials stocks helped them dodge the worst of the falls.
Between the start of May and 27 August, the FTSE 100 shed 13.16 per cent of its value while the FTSE All Share lost 11.38 per cent after panic over the falls in China’s stock market and concerns over growth in the Chinese economy gripped markets.
Given the source of the concerns, it is no surprise to see that sectors linked to China’s growth – such as mining, basic materials and oil & gas –suffered the largest falls.
Sectors largely unconnected to the country’s health, like leisure goods and home construction, even rose over the period in question.
The average UK equity fund, however, performed much better than both indices since the start of May with the typical IA UK All Companies fund falling 6.97 per cent and the average IA UK Equity Income portfolio losing 6.28 per cent.
Of course, there are several reasons for this – one of which being that the sell-off has largely hit the international-facing FTSE 100 rather the more domestic-orientated stocks found further down the cap spectrum. The FTSE 250 is down only 4.14 per cent while the FTSE Small Cap index has lost just 2.55 per cent.
This combination of exposure away from oil, mining and materials and a tendency to look outside of the FTSE 100 means that several ethical UK equity funds have risen to the top of their peer groups as markets went through the China correction.
There are 16 ethical funds with the IA UK All Companies sector and seven achieved top-quartile returns between 1 May and 27 August while another three are in the second quartile.
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