Broadening your horizon: investing in an ethical bond fund



Bryn Jones, manager of the Rathbone Ethical Bond Fund, spoke with Alex Blackburne about the advantages of investing in bonds over equities – namely, “more security, less volatility, and a more secure income stream”.

Bonds have been a big theme on Blue & Green Tomorrow this week. Firstly, we answered the question, What is a bond? as part of our “What is…” series. And then, IFA Julian Parrott explored the ethical options for potential bond investors with strong moral compasses.

Each week, we profile a different UK ethical or sustainable fund. This week sees the first ethical bond fund thrust under the B&GT spotlight.

The Rathbone Ethical Bond Fund was launched in 2002. Its manager, Bryn Jones, boasts 14 years’ experience in investment and joined the firm two years into the fund’s existence in 2004.

Whilst equities (stocks and shares) see millionaires made or broken in the media, bonds can offer individuals a safer form of investment.

[With bonds, you] get security, less volatility, a more secure income stream, and they also act as a good diversifier”, says Jones.

If you have a portfolio of equities, having a percentage of bond exposure means that your bond funds will perform differently from your equity funds.

There might be a period where your equities are going down but your bonds are going up.”

Diversification is often seen as the key to a successful investment. Placing too much emphasis on one particular asset class is a risky strategy.

From an investment perspective, the Rathbone Ethical Bond Fund’s aim is to generate income of between 5% and 7%, after fees and taxes. Ethically-speaking, the screening process is split into negative and positive criteria.

First of all, if [the company] is involved in any one of the following, it cannot go into the portfolio: alcohol, animal testing, armaments, environmentally unsustainable or high-impact activities, gambling, nuclear power, pornography and tobacco.

If it passes that screening process, it then has to have at least one positive aspect.

These include: corporate community investment, human rights, management in environmental impacts and provision of beneficial services and products.

This process really does lead to some really good strong investments in the portfolio.”

He believes that this ethical screen, along with the fund’s “good investment process, good performance and good yield”, help the Rathbone Ethical Bond Fund stand out from competitors.

Whilst some so-called sustainable funds do, in fact, invest in oil companies or car manufacturers, the dark green ethical screen implemented by Rathbone disallows its Ethical Bond Fund from doing so.

Many investment firms offer ethical or sustainable funds merely as a token, but Jones says Rathbone takes ethical investment very seriously – exemplified by its award-winning specialist ethical investment arm, Rathbone Greenbank Investments.

They were at the forefront of building ethical investment, having been around since 1992”, he explains.

If a client doesn’t know whether they want to buy bonds or equities or other asset classes, they can come in with £250,000 and give their money to Rathbone Greenbank, which will manage the money purely on an ethical portfolio service.

It has about 500 accounts and manages in excess of £350 million. So as you can see, we do take it quite seriously.”

One of Blue & Green Tomorrow’s primary aims is to promote ethical, sustainable or responsible investment to a wider audience – an audience that perhaps hasn’t considered the alternatives to mainstream investment.

And with £11 billion of private investors’ money currently invested in the ethical space—a figure that’s rapidly growing—it’s certainly a sector that is on the rise.

Jones says there are two reasons for this shift: financial and moral.

Companies that damage the environment, damage society, and damage other things should get financially taxed for that, whether it is through regulation or people not buying their products”, he claims.

Financially, companies are going to get hurt, if they don’t follow this process.

Then there’s the moral issue. If you have to choose between two companies to invest in, and their profits are pretty much the same, why not look at the company that’s actually doing better for society and doing better for the environment?

If the two companies are giving equal profits, any person in the world with a strong moral attitude would choose the company that’s providing other beneficial services to the world.”

This attitude, Jones says, has blossomed in many an investor’s portfolio over recent years. To echo what IFA Lee Smythe told B&GT last year, People are good.

Those three simple words perfectly describe why investors should take a more ethical stance. Most investors, given time to think, would avoid funding child labour projects or environmental destruction. Investing for financial return and investing for the future are becoming increasingly entwined; ethical and sustainable investments balance both.

To find out more about the Ethical Bond Fund, have a look at Rathbone’s website. Alternatively, if you’re interested in ethical or sustainable investment more broadly, download our free Guide to Sustainable Investment.

As always, we recommend that you seek professional financial advice. Fill in our online form and we’ll put you in touch with a specialist adviser.

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