One fund or more

crucian

Hi, I am thinking about setting up a stocks and shares isa with the full allowance, am looking at a ethical fund, is it best to have several funds or just one. I understand about risk.
Thanksin advance. 

AnotherJoe

Define "best" ?

Actually define "ethical" as well.

tacpot12

Assuming you could find two or more funds whose aims exactly matched your requirements and had identical charges, I would say that you would want to invest in all of the funds. The chance of any particular fund being the best performer is low; you might get lucky and pick that fund, or you might be unlucky and pick the worst performing fund. Pick them all and you end up with the average for that market. The average may be a negative number, but this will be better than if you picked the worst fund and only bought that.

crucian

By ethical I mean funds that aren't invested in arms, tobacco, non renewables etc. By best I mean would having more than one fund increase or decrease the risk. Hope that helps. 

AnotherJoe

crucian said:

By ethical I mean funds that aren't invested in arms, tobacco, non renewables etc. By best I mean would having more than one fund increase or decrease the risk. Hope that helps. 

- Well there are numerous 'ethical' funds some with a very wide remit. Some will simply be a general equity fund with "non ethical" companies removed from the list (eg, imagine say same as FTSE100 but without Shell, BP, BAT, maybe an arms manufacturer or two),  whereas others will be much more targetted perhaps only with a few dozen companies,  who are renewables & companies that do what they regard as ethical aims etc and still others, for example Fundsmith Sustainable or whatever its called which is the same as Fundsmith, very concentrated but with the odd oil company or whatever removed. And then others that might be renewables only - is that "ethical? Maybe youd think so, maybe someone else woudl think it was just a renewables fund and not an ethical one.

Risk of what? The more funds you have the more you will approximate the average performance of all ethical funds which likely approximates the average world index.

If thats what you are aiming for, then the more the better. Or, if you want to aim higher potential gains at the risk of underperformance (compared to what of course) , pick a small number you like the look of.

ColdIron

If you use two funds with different 'risk' levels you will achieve a blend or somewhere in the middle. But you need to define what you mean by risk. For example if one fund was an ethical bond fund and the other an ethical equity one, then choosing just the bond fund would reduce risk even further in terms of volatility but increase the risk of shortfall as bonds typically have much lower total returns than equities. Vice versa if you chose a single ethical equity fund. What are you trying to achieve and what risk are you trying to mitigate?

crucian

I am looking at 10years investment I have no mortgage, 90k in savings a NHS pension and will work part time until state pension age 66,i am currently 60, so am happy to take 80% plus equity investment. 

masonic

I'd suggest you examine and xray the fund(s) you are considering investing in to see if there are any signs they may not give you a broad spread of geographies, industries etc, and that they contain a sufficiently large number of companies. Multiple funds are needed when a single fund does not give you sufficient diversification, but Fund A could be more diversified than a combination of Funds B, C and D. Picking funds with an 'ethical' label will naturally restrict your options, and will also tend to make achieving a good balance more difficult to achieve.