Finance: Disastrous returns leave ethical investment fund bottom ofpile

The Charities Aid Foundation's Socially Responsible Fund has posted disastrous returns, according to an analysis of its five-year performance.

The fund, which manages £11.3m from more than 200 charity clients, delivered a total return of -23.6 per cent from 2000 to 2005, according to mutual fund information supplier Lipper Hindsight.

It finished bottom of a league table of 62 funds in the Investment Management Association's 'Active Managed' sector.

The sector includes funds that invest primarily in equities and hold at least 10 per cent of their portfolios in non-UK equities.

The Socially Responsible Fund, which was launched in 2000 as the CAF Ethical Plus Fund, was also the worst-performing of the eight charity-specific funds in Lipper's UK domestic league tables.

The fund is managed by Norwegian asset management firm Storebrand, which took over the mandate from Henderson's Global Investors in February 2003 after CAF expressed "concern about the focus Henderson was giving the fund".

It has grown by 31 per cent since 2003, but even this is 18 percentage points below the average of UK domestic funds, and 13 percentage points below the average for ethical funds for the period.

"Quite simply, the fund has consistently underperformed," said Nick Rickard, head of investment services at CAF. "We will look at the reasons behind that and take appropriate action."

Storebrand's approach was to choose 'best in sector' companies across a range of industry sectors, but to exclude entirely industries such as alcohol, gambling and defence. The firm recently closed its London office and now operates entirely from Oslo.

In June, CAF sacked Deutsche Asset Management as manager of its two common investment funds, replacing them with UBS and HBOS.

The Lipper figures show that, since 2000, ethical funds have significantly underperformed compared with mainstream funds. They have returned an average of -9.67 per cent in the past five years, compared with 7.51 per cent growth for their mainstream counterparts. They have narrowed the gap since 2003 but are still five percentage points behind mainstream funds.

A Storebrand spokeswoman said it was incorrect to measure the fund's return against a UK domestic index because the fund invests in domestic and international equities as well as in bonds. "We use a composite benchmark," she said


- The CAF Socially Responsible Fund manages £11.3m from more than 200 charity clients

- In the period from 2000 to 2005, it posted returns of -23.6 per cent

- Managed by Norwegian asset management firm Storebrand, it has recovered to grow by 31 per cent since 2003

- However, this is still 18 percentage points below the average growth of UK domestic funds in the same period

- The head of investment services at CAF said the fund had consistently underperformed and that action would be taken.

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