Six funds with (or without) an ethical bent

For those who want to seek out sinful stocks and are looking for a collective investment as a way of doing that, the Invesco Perpetual High Income and Income twins, of which the latter is a Money Observer Rated Fund, remain a good way of doing that.

Defence groups BAE Systems and Rolls-Royce and British American Tobacco and Imperial Tobacco are all top 10 holdings, accounting for almost a fifth of the funds.

It seems likely that new manager Mark Barnett shares his predecessor Neil Woodford's affection for these sectors, as his Perpetual Income and Growth Investment Trust includes three of these four - Rolls-Royce is the exception - among its top 10.

To find out how Money Observer's Sindex and Saints portfolios are performing, read: Saintly stocks turning the tables on the sinners.

Approach

For ethical investors, the first thing to decide is the approach you want the fund to take. Do you simply want to avoid sinful stocks, and if so which ones?

Remember that many funds with an ethical badge have large holdings in banks or oil companies, which may not fit your criteria. Or do you want a fund that actively pursues green investments? In that case, a large number of socially responsible investing (SRI) funds will effectively be irrelevant.

Ethical research expert EIRIS has a useful tool on its website to help you choose. It is also important, however, to look carefully at the fund's objectives and its major holdings before taking the decision to buy.

Among the funds recommended by Patrick Connolly, certified financial planner at Chase de Vere, are: Aberdeen Ethical World, a global fund with some SRI screens, and Money Observer Rated Fund Standard Life UK Ethical, which both excludes companies that do not meet its criteria and positively selects companies whose products and services meet some SRI objectives.

He also recommends the Kames Ethical Equity fund. For fixed income investors, he plumps for the Kames and Standard Life Ethical Corporate Bond funds.

He adds: "Ethical portfolios will also tend to be skewed toward mid and small-cap companies, as they are less likely to be causing any harm or damage, which again can make these portfolios more volatile. It is also difficult to reduce risks by diversifying away from shares. While there are some decent ethical fixed-interest funds, it is hard to access other asset classes such as property."