Fund Style Name: Ethically Balanced funds

Style USP: Investing in companies with higher ethical standards across most industry sectors

Brief description of Style

Funds which combine a range of positive AND negative ethical, social and environmental selection criteria as part of their investment strategies.

 SRI approach applied

This is a broad group of funds which is characterised by the inclusion of ‘ethical’ or ‘values based’ issues in their investment criteria – and by the way most fund managers balance the ‘pros and cons’ of companies activities.

Most fund managers in this style apply a range of positive and negative ethical, social and environmental screens in order to make balanced judgements prior to investing.

Funds aim to hold companies that are above averagely ‘ethical’ with strong investment prospects. Complex criteria are often used to decide whether or not a company is acceptable ‘on balance’. These funds do not normally have extensive lists of areas of absolute avoidance (as found with Traditional Ethical funds) as a core aim is to encourage positive behaviours. These funds are often covered by responsible engagement strategies to further encourage positive change.

SRI issues covered

Balanced Ethical funds generally research the positive and negative aspects of a wide range of ‘extra financial’ issues including some or all of the following:

• Traditional ‘ethical’ issues such as: armaments trade, pornography, alcohol production and gambling, animal welfare

• Social issues, such as; health and safety, employment practices and human rights issues

• Environmental issues, such as; pollution, climate change, transport and use of resources

• Governance issues, such as; executive remuneration, board structure, bribery and corruption.

The sectors that are most likely to be excluded are tobacco and armaments. Companies with other ‘negative’ aspects are likely to be required to meet certain criteria if they are to be included in the fund.

Variation across Style segment

The number of issues covered and the depth of research can vary. This group is characterised by its focus on pragmatic ‘balancing’ of issues. The number of issues considered and the depth of research varies greatly across this Style. Resources levels also vary. Some funds are supported by significant specialist in house teams, others are not. Many, but not all of these funds, are covered by engagement strategies.

Impact on investment strategy

Balanced Ethical funds can normally invest across most sectors and are likely to invest in ‘ethical leaders’ or ‘best of sector’ companies in most major industries including banking, oil and gas, pharmaceuticals and supermarkets.

Funds of this kind tend to be able to invest in more companies than Traditional Ethical funds and often have the option to hold more large cap stocks than more strictly screened funds.

Who is this Style most likely to appeal to?

These funds are more suitable for investors who are looking to support, encourage and benefit from investing in companies that are viewed as ‘ethical leaders’ in their respective fields – rather than investors who wish to avoid a wide range of negative activities. Investors should be aware that fund managers views may differ from their own.

Associated Styles

These funds often have features in common with Traditional Ethical funds, some Environmentally Themed and some Sustainability Themed funds.

Associated jargon

These funds tend to be referred to as ‘ethical’. They are sometimes referred to as ‘light green’ although this is somewhat unhelpful as their core focus is not green (environmental) issues.

Providers

Offered by a range of fund providers.

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