Some ethical funds perform as well as more traditional funds but others lag behind many non-ethical funds because of the investment restriction placed on fund managers. Large companies with sound track records tend to have diverse interests. They are as a result less likely to meet a fund manager’s ethical criteria. So ethical funds have a natural bias towards smaller companies. These firms tend to be regarded as more risky than investing in larger companies because they usually have less financial muscle and a shorter track record. But they can also offer potentially higher rewards.
TIP: As with any stock market fund, it’s worth looking at how it has performed over a one, three and five-year period. Compare this with the performance of a major stock market index. With ethical funds it pays to choose a smaller companies fund for this comparison.