Fund of the Week: Dark green is in the pink

With climate change hitting the headlines every other day, 'green' investing is drawing plenty of attention. But can it pay? Yes - if the pick the right fund.

With climate change hitting the headlines every other day, green' investing is drawing plenty of attention but can it pay? The answer is yes, if you pick the right fund. Over the past three years, Aegon Ethical Equity fund has returned 86.5% against 58.9% for the UK All Companies average, making it one of just five ethical funds in the sector's top quartile. And there may be more to come manager Audrey Ryan believes green stocks are set for a strong year-end.

Ryan's fund is based on "dark green" ethical criteria: as well as avoiding obvious ethical no-nos, such as tobacco or weapons manufacturing, she will not hold firms involved in animal testing or gene patenting. This strict screening process rules out many blue chips, meaning the fund has more exposure to small- and mid-caps than most of its peers around 60% against a sector average of 17%. But that doesn't mean stocks are effectively picked by a process of elimination: Ryan says she can still invest in 32% of the FTSE All Share.

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