Investors with an ethical outlook have long had a wide variety of equity funds to choose from, but there are still only a handful of bond funds with an ethical mandate for those looking for less volatility and higher income.
Rebecca Seabrook, manager of the F&C Ethical Bond fund, said: “Our investment universe is quite wide, so the fund has obvious appeal to charities looking to keep their principles intact and also the younger generation who are often more aware of their social responsibilities.”
The fund provides exposure to a diversified portfolio of more than 100 bonds, with a focus on investment-grade bonds: those with the best credit ratings.
Ms Seabrook added: “The fund is allowed to own up to 10% in high-yield (lower-quality bonds) and, although we have been steadily building exposure to high yield over the past few months, I don’t envisage us going above the current 5% as we are still in very volatile times.”
The fund uses a variety of disciplines to select each bond and, unlike her equity-manager colleagues, Ms Seabrook is thankful of the additional option of being able to select bonds denominated in US dollars or euros in addition to the pound.
Any active currency positions are hedged to avoid additional risk.
Commenting on opportunities, she said: “We have increased our holding in floating rate notes (FRNs). Although we don’t expect interest rates to increase in the short term, we do think that the environment will be more favourable for FRNs in 12 months or so, therefore we took the opportunity to pick them up cheaply now.”
The fund holds a bond issued by Motability, which helps people with mobility difficulties to buy cars.
Ms Seabrook said: “Not only does it meet our ethical requirements, but the majority of their revenue is from the (UK) Government.
“We also own a property bond issued by Tesco.
“This gives us first call on the cash received from the leases and is backed by the quality of Tesco.”
The fund has grown by 15.28% since its launch in October 2007 to the end of April 2010, compared with a 14.03% increase in its benchmark.
For more information about the F&C Ethical Bond fund, call 0207 628 8000 or visit www.fandc.com
Barry O’Neill is a chartered financial planner with Thomson Shepherd. Contact him on 01224 619215