Principles – and profits too

Ecclesiastical belies the cliche that high-minded investors must expect low returns. While still charitably focused, the group has a range of funds that hold up well among their peers


Ethical has not necessarily been a byword for investment success. However, one of the pioneers of the sector, Ecclesiastical, has managed to employ sophisticated ethical screens while retaining top quartile performance across much of its fund range. It remains the gold standard for an increasingly popular investment approach, but says that it continues to employ ‘traditional’ investment management.

The group can trace its financial services capability to the beginning of the last century. It started 125 years ago providing savings and investments for its mainly clergy client base. And so it remained until the 1980s, when it felt that there was a market for a pooled version of its investment expertise. The result was Amity UK fund, launched in March 1988, managed then and now by head of investments at the group Sue Round.

The fund reflected the concerns of the clergymen who were investing. As a result, it had some negative screening – alcohol, tobacco and weapon production, for example – but it also introduced the concept of ‘positive screening’, seeking out those companies showing a real benefit to their community – that promoted equal employment rights, or avoided toxic government regimes.

Round says: “At the time, this was a very new way of looking at investments. There were only one or two other funds and they both had a very negative approach.”

It was, and remains, a successful performer – it is top quartile over three and five years, with lower volatility than the wider IMA UK All Companies sector. It succeeded in drawing in some assets, predominantly using the group’s tied sales force. In 1999, the group expanded its range, and by 2009 had built funds under management to about £300m.

By that time, ethical investing had become far more popular. BP and the Macondo spill, plus the debacle of the banks during the credit crisis, had alerted many investors to the problems associated with unconstrained capitalism. Politicians had started to talk about ‘moral capitalism’. Round says that the group felt it was an appropriate time to rejig the range.

“We completely revised the range, ending up with six funds, four of which are screened. We reasoned that the market had moved on since the 1980s and ethical investing had become much more mainstream. Investors were increasingly taking account of the environment, social and governance issues and it was somewhere where we knew we had a unique selling point.”

This coincided with a drive by the management team to diversify the business beyond its predominantly clergy base. The investment side of the business became its own strategic business unit and a dedicated sales and marketing team was recruited. Relationships were forged with the major platforms.

Round says: “While we could not deliver the type of volumes they wanted because the funds were still quite small, responsible investing gave us something different. Equally, the performance of the funds has generally been good and that has opened doors for us.”


Since the relaunch, FUM have increased to £815m and continue to show momentum. Equally, most of the funds hold in excess of £100m in assets, which Round says is important in drawing the attention of larger investors.

The fund performance continues to hold up well. The UK Equity Growth, Amity UK are top quartile over three years and all the funds are ahead of their wider sectors over five years. The group also have two dedicated charities funds – Global Equity Income and Amity Balanced.

Investment has generally come from the IFA market. Round says: “We are aware the models are changing and that the lines are blurring between IFAs and wealth managers, but we continue to draw money from some big supporters. Some are non-specialist – without a strong ethical remit – whereas some do have an ethical stance.”

However, ethical investing has not always been associated with strong performance, particularly some of the older, ‘dark green’ investments in the sector. Round says there are various reasons why Ecclesiastical has proved the sceptics wrong: “We have a long record of stability,” she says.

“Our fund managers have been running our funds since launch. Also, we are generalists. We cover all asset classes – equities, bonds, property – it gives is a different perspective on markets and makes us more rounded as investors.

“Also, we are long-term investors. We have a low turnover and believe that churning a portfolio takes a percentage off returns for clients every time. At heart, we are value stockpickers. We do not mind taking a contrarian approach, but we recognise it can work against you in certain markets.”

At its heart the group’s investment approach is traditional: “We like strong companies, with good balance sheets that operate in strong markets. We like well-covered dividends. There are a number of key, basic things that we have not changed that during the time we have been managing money. We are a small team – four fund managers and four analysts – and that thinking is replicated across all the investment team.”

Round admits the group has had some headwinds in recent years from the ethical positioning, coupled with the valuation discipline: The group largely avoided the technology boom and bust. It had a very low weighting to banks in both its bond and equity portfolios during the financial crisis. More recently, some of the worst performing areas have been commodities, oil and mining, areas in which it is difficult for the group to invest from an ethical point of view.

The group’s ethical screen is done in-house, though the group also uses an external provider for some of its basic research.

Round says: “We do not have a set of rules or tick-boxes that we have to follow, but the ethical considerations are integrated into our investment selection. At the moment, for example, we are looking at the impact of shale gas in the US and what might happen in the UK. There are some environmental issues around this process and the difference between the UK and US is very marked. The US has a softer kind of rock. There is also lots of open land in the States, whereas the UK is more densely populated.”

For Round it is all about a proper understanding of risk. When they look at a mining business where there is a potential environmental impact, they want to understand the risks and how they are being mitigated. She adds: “The culture of companies is really important. We try to meet as many companies as we can, so we can engage with them regularly.”

Round says the group’s ownership structure marks it out as unique. The group is owned by the Allchurches trust and all fees find their way back into the charity: “This is differentiating for us in a sector that has become very tarnished. Fund managers are not always aligned with their customers. What we have is something that gives us the ability to say that people can trust us. We are not driven by the same things as other fund managers. The fees are going to the wider community.”

The Allchurches trust, as its name suggests, gives its profits back to the church and associated projects. Some of these are church rebuilding, others areas include hospices, counselling services and education. The group made £9,032,348 of charitable donations during 2011 (the latest year for which figures are available).

The group may ultimately be charitable in its focus, but it does not mean it lacks ambition. Round says they will consider a broad variety of investment opportunities: “We do not want to grow the business so there is a fund to meet every need. That is not appropriate for us. That said, we would see the fund range expanding over time, but in small increments. It is more likely to be different versions of a theme.”

While the group does not have a problem running non-screened money, Round says they recognise they add most value in the ethical area so this would be the focus for any new funds. She says there may be a greater need for a fund that only looks positively, and employs no negative screening.

She adds: “More importantly, we are interested in trying to attract those institutions, such as small family offices or charities, who feel that the bigger players are not so interested in them as customers. There must be a gap between those who go to the big guys and those who want a fund manager who is more aligned with their objectives.”

The cliche runs that investors have to sacrifice profits for principles when investing, but Ecclesiastical has proved that does not necessarily have to be the case. Equally, the aftermath of the credit crisis has brought a realisation that ethical investing has an important risk management role as well. Groups such as Axa IM and F&C now employ ethical screens across all their funds. Ecclesiastical is an old-fashioned group in a very modern sector.

The independent views

Adrian Lowcock 200

Adrian Lowcock, Hargreaves Lansdown

”Ecclesiastical have established themselves at the heart of ethical and socially responsible investing with a long-term, value-driven investment approach. They have their own in-house SRI analysts, which are involved at an early stage of the investment process and an experienced team.”


Patrick Connolly, communications director, Chase de Vere

“We do not cover Ecclesiastical because historically the funds have been too small. The UK’s first mainstream ethical fund was launched by Friends Provident in June 1984 and at the time it was rather unfairly labelled as the ‘Brazil fund’ because you would have to be nuts to invest in it. Since then ethical investing has regularly been touted for a growth explosion but, despite occasional periods of interest from investors, it has never really taken off.

”That said, many investors are interested in the concept of investing ethically. However, the over-riding objectives for most investors are maximising returns and managing risk and both of these are more difficult to achieve if investing ethically. Diversification is a major problem for ethical investors, which is why ethical portfolios can be volatile. Ethical portfolios will typically avoid some sectors such as tobacco and have lower weightings in others like oil and gas. This means there is more focus on those sectors where they are able to invest and their comparative performance is often dictated by how the sectors they hold perform compared with those which they do not. Ecclesiastical funds have generally been below our radar, and for those who are keen to invest ethically we tend to recommend Aberdeen Ethical World, Standard Like UK Ethical, Kames Ethical Equity, Kames Ethical Corporate Bond and Standard Life Ethical Corporate Bond funds.”


Tim Cockerill, head of collectives research, Rowan Dartington

The Ecclesiastical are perhaps best known for their Amity range, which as you might expect has an ethical/SRI approach.  They also manage a small number of non-SRI funds. Performance of the Amity range, has on the whole been good and for the ethical/SRI investor they offer a good choice; fixed interest, international, UK and even Europe. Their approach when they screen companies for potential inclusion within a fund is, I feel, pragmatic, allowing for minor involvement in ‘harmful’ industries to not exclude a company from their universe. This is essential if a manager wants to create a diversified portfolio.  Active engagement with companies is another important role they play, as do other ethical/SRI manager. They engage to try to get company management to change practices that are damaging to the environment or exploitive for example. For most investors the Ecclesiastical won’t be an investment group that comes to mind but if you’re looking for ethical/SRI funds then they should most definitely be on your list.


Ecclesiastical was established in 1887 to protect the Anglican Churc and remains owned by the Allchurches trust. It now has over £800m in asset under management across six investment funds and two charity-focused funds. All of its fees go back to the church and associated charities.