Do ethical funds harm your wealth?

Investing only in ethical companies naturally appeals to many people, says Adam Jourdan. But are you sacrificing the best returns?

The notion of ethical or socially responsible' investing has been around for some time. It involves screening stocks for a range of factors, from how companies treat their staff, to their environmental impact. The idea of investing in companies that do good' or at least do no harm' naturally appeals to many people.

But what does it mean for your returns? The answer is, not a lot. "Modern portfolio theory says that [your returns] should hurt, because anything that makes an investment universe less diversified results in a lower expected return for a given level of risk," says David Kathman of research group Morningstar.

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Adam Jourdan

Adam is a former journalist at MoneyWeek, writing about global economies, equities, politics and general news stories for print magazine and online. Since then, Adam has worked at Thomson Reuters for more than 10 years, starting off as a graduate trainee and worked up to Bureau Chief, South Latin America. He also has experience leading teams of reporters in China.