How Do Ethical Investments Compare to Other Assets?

31 October 2019
Ethical funds have become more and more popular in recent years as investors look for ways to grow their wealth responsibly. Investing your money in renewable energy, sustainable businesses or community infrastructure may make a positive impact in the world, but what about the impact on your wallet? What sort of returns can you expect from an ethical investment and how do they compare to other types of investments?

Fortunately, the Responsible Investment Association Australiasia (RIAA), the peak body of ethical investors in Australia and New Zealand, have published a report covering this very issue. The RIAA compared the performance of a selection of ethical investment funds, such as those created based on environmental, social and governance (ESG) considerations, against mainstream funds that don’t apply a specific ethical framework. They compared performance over 1, 3, 5 and 10-year time frames based on the asset-weighted net returns.

How do ethical funds compare to Australian Share funds?

The first comparison has taken the average of 17-34 Australian share based responsible investment funds and compared it to mainstream Australian share fund benchmarks. As can be seen in the below chart, the responsible investment funds outperformed the Morningstar: Australia Fund Equity Large Blend across all time frames, and the S&P/ASX300 index for all periods except the 3-year time frame.

Do Ethical funds compare with traditional funds?

Considering online share trading? The table below displays a snapshot of online share trading platforms on Canstar’s database, sorted by star rating (highest to lowest) and with links to providers’ websites. Please note the Star Ratings are based on the casual investor profile (average of 2 trades per month). Always ensure you read the PDS before selecting a online share trading provider. 

How do ethical funds compare to International share funds?

The second comparison is of the average of 7-38 responsible international share fund benchmarks. Here the responsible investment funds outperformed the Morningstar: Equity World Large Blend, but only out performed the MSCI World index in the 3-year time frame.

Ethical funds vs. other funds

How do ethical funds compare to Multi-sector growth funds?

Finally, the RIAA compared multi-sector responsible funds with the multi-sector growth fund average. In this instance, the average of 7 responsible investment funds sampled outperformed the mainstream average on all time frames.

Ethical funds vs. Multi sector funds

Overall, according to the RIAA report, responsible investment funds outperformed the mainstream fund average in eight out of the 12 sample time frames and under-performed in four. This report shows the responsible investments don’t necessarily equate to poor returns, instead, they have the potential to produce strong returns and even outperform more mainstream strategies at times.

Keep in mind

Of course, this is only a small, averaged sample, and a specific fund may have performed better or worse over the sampled time frames.  It’s also worth keeping in mind that past performance isn’t a guarantee of future success.

You can read the full report here.

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Cover image source: lovelyday12

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