Rebecca Seabrook, the manager of the F&C Ethical Bond Fund, says ethical screening has not affected her fund’s ability to perform in these markets.
“The screening process means that around 54% of our universe is currently acceptable,” says Seabrook. “The fund can still do everything that other non-screened funds in our sector can do.”
Interest in fixed income has surged over the past few months as nervous investors shun volatile equity markets.
“The primary reason people are looking at bonds at the moment is that their other sources of income are going down,” Seabrook says.
Fears have been mooted, however, that the surge of investment into the bond market risks causing a bubble in the asset class. Seabrook says the risk is not the money in itself but the fact that it all seems to be moving in the same direction.
“Cash coming into the market is positive,” she says. “The main problem is that the market has become very dislocated between companies investors like and those that they won’t touch.”
Bank debt is still shunned, despite government efforts to reassure investors over the stability of large financial institutions. In contrast, defensive sectors such as pharmaceuticals and tobacco have enjoyed significant capital inflows, although the latter is outside of the Ethical Fund’s remit.
While the government’s plan to buy up debt in the market as part of its quantitative easing policy is already underway, Seabrook says she is yet to tender any of her holdings.
“The Bank of England seem to be sticking with buying the blue-chip stuff like Wal-Mart and Tesco which can already be sold in the market,” she says. “It could actually make the problem worse by further polarising the market.”
Over one year the F&C Ethical Bond fund is down 4.85% against an Investment Management Association (IMA) Sterling Corporate Bond sector average fall of 12.9%, according to Financial Express.