Credit crunch hits ethical investment

Boom times are over for ethical funds, with the credit crunch and economic instability hitting ethical investments particularly hard.

The last year has seen a reversal of fortune for ethical funds, which until 12 months ago had been strongly outperforming non-ethicals.

Research by Investment Life & Pensions Moneyfacts found that in the year ending 1st September 2008 the average ethical investment portfolio fell 9.1%.

This is compared to a much smaller fall of 5.7% for non-ethical portfolios.

Just seven out of fifty seven ethical funds posted positive growth for the period, with the lead fund recording a growth rate of 3.2%.

The worst performing ethical fund recorded negative growth of 33%.

Richard Eagling, editor of Investment Life & Pensions Moneyfacts, said the poor performance of ethical funds can be blamed on two factors.

Firstly, ethical funds do not invest in mining, oil or gas – sectors which have performed strongly over the last year.

Secondly, ethical funds prefer to invest in small and medium sized businesses, which have had a hard time through the economic downtown.

He added that it is not all doom and gloom for ethical investors, especially in the long term.

According to Eagling, in the last three years ethical funds have ‘significantly outperformed’ non-ethical investments, and have even surpassed growth on the FTSE 100.