Advice request on S&S ISA - ethical funds

bohemia

Bit shy about starting a new thread but here goes...

I want to dip my toe in and invest 50 pounds a month into an index tracker (seems boring to me but this is what I've gleaned from days perusing this forum!). And an Ethical fund.

I am 29, married, and saving almost a thousand a month in cash for a house deposit. I would like to start investing on a regular basis for the future. Perhaps the next 20 years or so and don't plan on needing the money before then (like I said, cash elsewhere). I suppose I'm interested in medium to high risk then...

Obviously, I'd increase the amounts once I'm no longer saving for a house. My thinking being, with interest rates so bad and starting young, I might be able to make more than i ever could in cash in the far future.

As well as the dipped toe tracker (FTSE 100 I'm thinking... such as Fidelity Moneybuilder) I am also an ethical kind of gal and have been interested in the longtime funds such as Jupiter Ecology, Ecclesiastical Amity International, F&C Stewardship Growth Inc.

So I suppose I am interested in investing through a S&S ISA into the tracker that I mentioned (benefits as I understand are it's cheap as passive and I can leave it alone, prob useful as a newbie) and also 50 a month into one of the aforementioned funds. I'm currently running a practice account on share.com btw.

Is there any advice for me apart from continuing to read up and research before I start? Should I wait awhile anyway? Should I go through HL or Sippdeal? SHould I look for a low AMC? On HL the index trackers seem to charge 2 pounds a month, on 50 pounds that seems ridiculous...

Many thanks in advance for reading (and responding!)

dunstonh

I want to dip my toe in and invest 50 pounds a month into an index tracker (seems boring to me but this is what I've gleaned from days perusing this forum!). And an Ethical fund.

If you are going to invest in a tracker than you do not have an interest in investing ethically. Especially as you mention tracking the FTSE100 which is probably one of the most unethical indexes going as well as one of the worst performing. So, why invest in an ethical fund?

On HL the index trackers seem to charge 2 pounds a month, on 50 pounds that seems ridiculous...

On funds that do not pay HL, you have to pay HL.

MarcoM

dunstonh which tracker would you suggest the OP buys?
In was interested in the ftse 100 via hsbc but you say this is not very good. Would the 250 one be any better?

thnks

Special_Saver2

There is only one ethical FTSE tracking fund that I am aware of.

It is the Legal and General Ethical Trust. It is an ethically screened FTSE 350 tracker. You can invest from £50 per month.

The charges are quite high - the annual total expense ratio (TER) is 1.15% and the bid-offer spread is around 0.6%. If you don't know what I mean by this, see the bottom of this message.* These charges are much higher than on a non-ethical tracker fund.

There are ways to get a discount on this. If you wait until the beginning or end of the tax year (so around April) then usually L&G have a promotion, such as a rebate of the first year's management charges.

Alternatively, a better long term discount can be obtained by using one of the providers in post 2 of the low cost S&S ISAs thread. Using one of these providers you can get a lower TER, for example with Sippdeal. They are offering a rebate of 0.5% per annum, which will bring your TER down to 0.65%. There is no charge for buying units in this fund monthly with Sippdeal but beware: when you want to sell, you will have to pay £9.95 and they reserve the right to change the rebate rate.

Although the charges are higher than a non-ethical tracker, they are still lower than the charges of an active ethical fund.

SS2


*Explanation for newbies: Even though L&G say that there is no initial charge on this fund, they introduced a bid-offer spread on this fund a few years ago. This means that if you buy and immediately sell some units in this fund, there is a difference in the price that you pay to buy and the price that you sell at. The net effect is that L&G pockets some money (around 0.6% in this case) on the transaction, regardless of whether you buy and sell through L&G directly, Sippdeal, or any other broker.

The annual management charge is 1% but L&G have started charging an additional 0.15% on top for miscellaneous expenses, which means that the total expense ratio on this fund is 1.15%. This means that L&G deduct 1.15% per year from your funds.

Special_Saver2

I feel I should add a word of warning. In my experience, this fund (like all FTSE trackers) has been really volatile. The price jumps up and down all over the place (which it is meant to, as it is tracking the FTSE). This is great when the market is rising and scary when the market is tumbling. Most experienced investors can cope with this but new investors sometimes have trouble with this.

If you want something lower risk and less volatile, then consider choosing an ethical managed fund. There is a decent list of different ethical funds on trustnet.com to look at.

There is also one more ethical tracker fund, the Co-operative UK FTSE 4 Good Tracker, but this is not an index that most people follow and it is full of companies that I would not want to own. The charges for this fund are so high that you might as well spend your money on a good actively managed fund instead.

SS2

Eponym

I too have been considering an ethical fund (of the income or dividend variety - I am a similar age to you and aim to buy regularly at £50 a month and hold to allow the fund to grow from the dividends).

Most of the decent income or dividend funds I can find seem to invest in tobacco which I'd prefer not to do.

But 'ethical' means different things to different people. To me it means no tobacco or arms companies, and preferably no oil companies either. To other people it may be much nore wide-ranging. What does it mean to you?

thenudeone

This would be a good place to start looking:
http://www.ethicalconsumer.org/buyersguides/money/ethicalinvestmentfunds.aspx

bohemia

Great! Lots of useful replies!

Yes, I get the point of the FTSE not being 'ethical' at all. But it seemed like a sensible place to start as trackers have been recommended here and elsewhere for newbies. My mentality is also, at least in the future if I put most/all of my investments into good causes, it will do some good.

Different levels of 'ethics' when it comes to funds, s&s etc I know, in terms of the screening. But I thought here was a good place to get more information/opinions

Many thanks!

Special thanks to SpecialSaver for going to the trouble of finding out that info and explaining to newbies.

bohemia

Eponym wrote: »

But 'ethical' means different things to different people. To me it means no tobacco or arms companies, and preferably no oil companies either. To other people it may be much nore wide-ranging. What does it mean to you?

I'd agree with you, definitely for starters. Although I would like in the future to also invest in darker green funds.

Perhaps let me know what you go for?

Jegersmart

Personally I would suggest that trackers are definitely *not* the tool for beginners. If you buy at the top it could take years for the market to recover although some trackers pay dividend which may make up for some of that......but I would only use trackers at times when the market has had a big sell off...

imho

J

thenudeone

Many analysis sites such as trustnet allow you to compare funds claiming to be ethical / sustainable
http://www.trustnet.com/Investments/Perf.aspx?ctr=QS&univ=P&Pf_AssetClass=I:ETHL&Pf_sortedColumn=Performance%5bCur%5d.P120m,NameFull&Pf_sortedDirection=DESC
(but you need to check each one in details because some just seem to be standard funds)