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Ethical investors seek alternatives to rallying banks

Inability to invest in banks proves a 'headwind' for Kames Ethical Equity fund, which seeks to profit from insurers and asset managers instead.

 
Ethical investors seek alternatives to rallying banks

A strong rally in UK banking stocks in the second half of 2012 was ‘quite a headwind’ for the Kames Ethical Equity fund , which instead sought to capture financial services gains from companies including Hargreaves Lansdown, Paragon and Brewin Dolphin, fund manager Audrey Ryan says.

‘Clearly our performance in 2012 was impacted by not having access to banks,’ Ryan said of her fund, which was came 79th out of 297 funds investing in UK companies ranked by Citywire. A Citywire Selection pick, the fund finished the year with gains of 18%.

Banks, which provided many funds with a boost to their performance stats in 2012, are excluded from the Kames fund under the company’s ethical screening criteria, which also excludes sectors like gambling, tobacco and military.

The scandal-struck banking sector has rallied strongly, benefiting from an improvement in overall investor sentiment and signs that the global economy is improving.

Instead of banks, Ryan has invested more in insurance and financial services companies. Financials are the biggest sector in the fund, at 21%. ‘We’re very positive on the outlook for asset managers,’ Ryan said, with holdings in Brewin Dolphin (BRW.L), St James's Place (SJP.L), Schroders (SDR.L) and Rathbones (RAT.L).

Among insurers, Ryan owns Standard Life (SL.L), Legal & General (LGEN.L), Prudential (PRU.L) and Resolution (RSL.L). 'Resolution is a new position for fund during 2012 – we believe it can generate decent returns during 2013, the yield will moderate but growrh in this business will be strong,' she said.

She also praised another of her holdings, Hargreaves Lansdown (HRGV.L), describing yesterday’s financial update as ‘very encouraging’.

Ryan also increased her exposure to Paragon (PARA.L), the specialist buy to let lender which has attracted several other fund managers recently.

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  • Kames Ethical Equity A Acc
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  • Hargreaves Lansdown PLC (HRGV.L)
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  • Brewin Dolphin Holdings PLC (BRW.L)
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  • The Paragon Group of Companies PLC (PARA.L)
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  • Schroders PLC (SDR.L)
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  • Resolution Ltd (RSL.L)
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  • Prudential PLC (PRU.L)
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  • Legal & General Group PLC (LGEN.L)
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  • St. James's Place PLC (SJP.L)
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  • Standard Life PLC (SL.L)
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  • Rathbone Brothers PLC (RAT.L)
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  • Audrey Ryan
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