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EdenTree Amity UK Fund

Ed Monk

Ed Monk - Fidelity Personal Investing

The EdenTree Amity UK Fund is one of the oldest funds that invests with social responsibility in mind.

Launched in 1988, it has recently been joined by an army of newer arrivals, all looking to respond to the increasing demand for ethical and socially responsible investing. This influx has not made it any easier for investors trying to understand how funds invest, according to Ketan Patel, manager of the EdenTree fund.

“It’s a very confusing space in terms of language”, he says. “Funds describe themselves as either Ethical, SRI (socially responsible investing), ESG (environmental, social and governance), Sustainable or Impact funds. Those are actually five different things that investors have to understand”.

Patel describes his fund as “Responsible and Sustainable”. He added: “We think you need those two because an arms company may be sustainable, but is it responsible? No.”

The fund screens UK equities that mostly fall into the small and mid-cap space. There are both positive and negative screens, Patel explains. Negative screening simply rules certain companies or sectors out from the very start. Positive screens, meanwhile, go looking for companies making a positive impact in the eyes of the fund manager.

Patel says that anyone thinking of using a fund like his needs to understand what’s going on underneath to ensure that their values are matched by those of the fund and the manager. Many investors can be surprised, for example, when they find their ‘ethical’ fund has no problem with fossil fuels.

There are currently steps being taken to better classify ethical funds for UK investors, but Patel is sceptical that any measures - for a separate ESG fund sector, for example - can replace the need for investors to understand funds for themselves.

He adds that for funds like his to do their job properly, then managers like him need to exercise their right to vote on company actions on behalf of investors and with the aim of improving corporate behaviour - and that tends to mean funds have to be run actively.

“Voting is really important for us and we publish how we’ve voted every quarter. There is increasingly a focus on high pay and how this can make companies too short term. Passive funds and Exchange Traded Funds (ETFs) won’t vote so can’t improve that. I understand the drive for lower fees, but I don’t think you can do this passively.”

Patel insists that his approach is not simply about issues of conscience - it will lead to a higher return as well.

“Years ago it was seen as binary - you have to give up profits for value”, he says. “Wrong. Investing responsibly and sustainably gives you alpha - or a higher risk-rated return. But it also gives you risk management because it removes companies that we think won’t be around in five or 10 years‘ time.”

Patel says his team is constantly updating its thinking to take account of new trends. Right now, the focus on the potential detriment hidden in supply chains is a concern. This could include ‘fast fashion’ chains reliant on cheap labour in emerging markets, but also the most expensive smartphones which need rare minerals in their manufacture.

“We’ve been a thought leader for a long time and we always need to be thinking about these issues. They can change all the time.”

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Important information

The value of investments and the income from them can go down as well as up, so you may get back less than you invest. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.