‘Ethical firms tend to be better run’

hen we started almost 30 years ago, people thought we were nuts,” Sue Round, manager of the EdenTree Amity UK fund, said.

The fund, then under the banner of Ecclesiastical Investment Management, aimed to invest only in those companies the manager believed made a positive contribution to society – not typically the top priority of hardheaded investors.

Now, however, the approach is not seen as quite so outlandish. Companies that pay attention to their wider social and environmental impact can be better relied on to build sustainable profits and avoid catastrophic failures that hurt their reputation and prospects.

That, at least, is the argument put forward by advocates of ethical investing. The funds that pursue this course have, in recent times at least, been able to point to returns that compare with their mainstream counterparts.

The EdenTree fund, as its former name suggests, was started as a means for dioceses within the Church of England to build wealth to support their clergymen. Its remit now extends beyond the tenets of the church to encompass wider ethical concerns.

Here Ms Round explains how she constructs the fund.

How do you select companies to invest in?

I like straightforward companies that I understand and that have strong market positions.

We are looking for long-term growth, with income also contributing to the total return. My approach is “fundamental value”, which means companies we think are undervalued by the market, but we also seek some growth where that is at reasonable value. There is room for spicier components, but we tend to limit those holdings.

We hold about 110 to 120 stocks and there is a bias towards medium-size and small companies, which account for 45pc of the portfolio. Large firms are about 43pc.

There has always been an emphasis on capital preservation.

Market valuations have been extreme – have you had to alter your approach?

It’s true that valuations on defensive growth companies have been very high and you have to pay attention to that.

Value shares have been out of fashion and that has not been helpful, but it would be a mistake to abandon valuation measures to invest in growth-oriented stocks. We look particularly at free cash flow, price to earnings, dividend yield and gearing.

We are still able to find defensive stocks that are not dependent on the UK economy and make profits overseas.

How do you keep the fund ‘ethical’?

There are areas that we avoid – alcohol, defence, gambling, mining, tobacco – but what marks us out is that we look actively for companies that contribute to society and the environment.

Has the appetite for this kind of investing changed?

We launched the fund 27 years ago and it was a different world. People couldn’t understand why you would limit yourself by avoiding large areas of the market.

Now there is a recognition that companies that take account of their impact on the wider world are also likely to run themselves better in other areas, too. Brand and reputation are more important and companies that maintain these are less likely to walk into huge corporate disasters.

What stocks do you like now?

We’ve been a long-term investor in Halma, which is a small conglomerate of businesses that focus on safety, health and environmental industries. It has demonstrated that it can effectively grow through acquisitions and most of its turnover comes from overseas.

NCC Group is another stock we like. It is a specialist in cybersecurity, and is another one that earns outside the UK.

Do you invest your own money in the fund?

Not currently, but I certainly used to for a long time.

If you hadn’t become a fund manager what would you have done?

I collect antiques and would have liked to have been a dealer.

EDENTREE AMITY UK

vs average UK fund over five years

Sue Round of EdenTree tells Ed Monk why her brand of investing can deliver outperformance

How to buy the fund as cheaply as possible

The trust has a total cost (the “OCF” or “TER”) of a year. Be sure to buy the right “share class”, which is “B”. The investment shop through which you buy the fund will also levy a charge. Some will charge

0.8pc

a percentage of the amount invested, others will apply a flat annual fee. Our colour coded tables at

telegraph.co.uk/ investing

will guide you to the cheapest fund shop for your circumstances.

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