Ethical Portfolio takes a step back

After the previous month's spectacular performance, the Portfolio has marked time over the past few weeks, reflecting a market that, on balance, was little changed at the time of writing.
 
The Portfolio is now up 129% (128.9% up last time we reviewed it, after allowing for dealing costs). The FTSE 100 (UKX) is still down since inception, but getting even nearer to showing a positive return. It is now off 1.8% since the Portfolio's inception in April 2002 (last time round it was down 2.4%). These changes are both movements of fractions of a percentage point, so barely worthy of further comment. There has been no dividend income this time round.
 
The total return index is now up 29.9% (up 30.3% last time) since inception and the FTSE4Good UK50 index, which we use as our ethical benchmark, is now down just 5.3% since the Portfolio's inception (6% last time round).
 
With the market little changed from the time when we last reviewed it, the Portfolio has not been penalised in performance terms for having a significant percentage of its assets still in cash. We await a possible market correction, but recent action in the index seems to suggest that it may take some further time to materialise, if indeed it does manifest itself at all in the form of a sharp setback.
 
It is possible the correction could just turn out to be a lengthy period of sideways movement, which will allow the underlying background for economic growth and corporate profits to catch up with the expectations that have now been built in.
 
Another view in the market is that the persistent strength of the index simply reflects the liquidity that the authorities have pumped into the system. If so, the market will not correct until it sees signs that this additional liquidity is being removed. That could be some time in the future. The policy is only likely to be reversed once economic growth has taken up the slack.
 
The moves I made in the Portfolio last time round have not yet paid off in any conspicuous way: rather the reverse. Rotala (ROL), which we sold, has hardened a penny or two, while United Utilities (UU-), a holding we topped up, has fallen back slightly.
 
News emanated from United Utilities in the form of a trading statement. It suggested that what is described as a 'sound' underlying performance could be expected when its results are unveiled, although the detail suggests that operating profits are likely to be flat in the regulated side of the business and only marginally up elsewhere.
 
Whether United Utilities is holding something back here to strengthen its hand in the current discussions with the regulator over the future price determination regime remains to be seen. Even so, I think it is a good move in the current climate to keep a solid defensive income play like United Utilities in the Portfolio.
 
Potential new investments are still hard to find. One of the problems we have always had with the Portfolio is to find enough new investments when, for whatever reason, we decide to drop one of the existing constituents.
 
The reason for this, as I have explained from time to time in the past, is that the Portfolio has consistently pursued a 'deep green' philosophy of ethical investing. That's to say, we are in the business of not just avoiding the pernicious areas of armaments, alcohol, tobacco and gambling, but actually trying to pick stocks that make a positive contribution to human welfare.
 
Since this philosophy has delivered the best long-term performance of all of the Analyst portfolios, it is not an idea I am ready to abandon, however hard it makes the process of selecting new constituents.
 
The other constraint we operate under is that, since several areas of the market are denied to us, we have to guard against have too much concentration in obvious ethically sound areas of the market, like utilities and property. An ethical fund I worked for many years ago fell into this trap, with a heavy emphasis on property. Performance was good while property values were rising, but it paid the penalty later.