Investor Views: "Ethical Investing has Boosted My SIPP"

Private investor Martin Appleton explains how taking an ethical approach to stock picking has improved returns in his personal pension

Emma Simon 21 October, 2015 | 8:00AM
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It’s Good Money Week; when ethical investment companies try to encourage investors of think about what their money invested in pensions, ISAs and bank accounts is really funding.

I want my money to be doing some good, not exacerbating the problems we have in our society

One investor they don’t have to convince is Martin Appleton, who has seen the benefits of taking an ethical approach for himself.

Appleton runs the family’s engineering business, Seco, which manufactures high-quality industrial power tools. When he and his brother took over the business, they set up SIPPs to provide a company pension.

As a Quaker, Appleton has always applied strict ethical criteria on where his money should be invested. He says: “My brother doesn’t apply the same criteria to his investments. But doing the right thing can pay dividends, as the returns on my portfolio have generally been better.”

He adds: “This is my retirement fund, so I want to get a decent return on it. But it’s very important to me that the money isn’t just sitting there: I want it to be doing some good, not exacerbating the problems we have in our society.”

To this end he avoids investments in defence and armament firms as well as companies that derive their profits from the sales of tobacco, gambling, alcohol or pornography. He’s also keen to use his capital to invest in companies that are developing new environmental technologies and more sustainable systems.

Finding Ethical Opportunities for Profit

Appleton says that it is not easy finding these investment opportunities however.

“I am an engineer by training, not a fund manager,” he adds.

To help him find appropriate investments he uses a firm of specialist advisers, Investing Ethically. His adviser ensures investments meet his strict ethical criteria and are appropriate for the risk he wants to take with his money.

Appleton says: “I take a fairly hands-off approach. I’ll meet with my adviser Lisa twice a year and we’ll discuss how my investments have done. Usually only about 5% of my money will be switched around at these meeting.”

Investing for the Long Haul

He describes himself as a long-term investor.

“It’s the same philosophy we take with our own business - it’s all about building good long-term relationships,” he explains. “I think if you’re an ethical investor, you have to take the long-term view. I’m not looking to get make a quick buck, then switch my investments.

“I’m looking at whether growth rates and returns are sustainable. Taking a short-term approach encourages poor corporate practice. It also seems to be very inefficient as there’s a cost to buying and selling, and many people will simply get these timings wrong.”

Top Rated Ethical Funds

One of his better longer-term holdings has been Kames Ethical Equity fund. This has a four-star performance rating, and the manager, Audrey Ryan, who has run the fund for the past 15 years, has a Silver Rating from Morningstar fund analysts.

Morningstar analysts the fund is very good way for ethical investors to gain exposure to UK equities.

The fund has a bias towards smaller and mid-cap stocks, many of the larger healthcare, energy and defence companies that make up the FTSE 100 are companies are automatically excluded.

But this hasn’t dented returns: over three years the fund has produced a 14% return – outperforming many non-ethical UK equity funds.

Appleton also invests in Royal London Sustainable Leaders Trust, formerly called the CIS Sustainable Trust.

Like the Kames funds this has a four-star performance rating. The manager Mike Fox has a been awarded a Bronze Rating by Morningstar fund analysts.

Both these funds take a ‘two-stage’ approach to stock screening and selection. A separate team researches stocks and selects only those that meet the set ethical criteria. The fund manager is then given this screen set of stocks, from which they pick the ones which they think will perform well over the longer term.

These two funds are both UK-based. Appleton says he has the bulk of his SIPP in funds that invest in UK and European stocks, but he says he does have some exposure to South America and other emerging markets. He says he has not had as much success investing in US-based funds and stocks.

Providing for Both Employer and Employees’ Future

Appleton says he has been happy with the returns to date.

“My brother now lives abroad, and he manages his investments himself. He is more of a high-risk investor and will chop and change holdings more frequently. Although he has enjoyed some big gains, there have also been more significant losses. When we compare notes my slow and steady approach has usually paid off,” he says.

Ethical investor Martin Appleton, who runs an engineering businessAppleton says this pension is the lion’s share of his savings. “Many people who are self-employed or run small businesses often overlook this. They might provide a pension for staff, but often they aren’t saving for themselves,” he warns.

“I’ve heard lots of people say that they’ll sell the business at a later stage and this will be their pension, but this isn’t guaranteed. They might be working long hours, and investing everything back into the company, but they could have very little themselves when they come to retire.

“We’ve bought our business premises through a company pension structure. Rather than simply pay money on rent, this money can be invested to help provide for our own family future.” 

How do you decide what funds or shares to buy? Do you have a fail-safe sell trigger? If you'd like to feature in Investment Views and tell us about your investment strategy please contact the Editorial team on UKEditorial@morningstar.com

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk