Royal London Asset Management has launched a new ethical fund which will invest primarily in screened UK-listed equities, adding to its existing ethical bond fund.

The Royal London UK Ethical Equity Fund will exist in around 40-60 stocks which will have been screened for their environmental, social and governance credentials by the investment research provider EIRIS. The investment process will be both negative - weeding out firms which are engaged in excluded activities - and positive, in putting forward best-of-breed companies in permitted sectors. Out of this investment universe the fund’s manager, Bradley Mitchell, will select out-of-favour companies where he believes there is a catalyst to drive the market to reflect their true value over the longer term, the firm said in a statement.

Looking more closely at the investment process, the screening procedure will exclude companies which derive over 10 per cent of their turnover from alcohol, armaments, gambling, tobacco or pornography. Additionally, firms which do not have appropriate policies in place with regard to the environment, human rights and animal testing will be ineligible.

Mitchell said in a statement that RLAM is seeing increasing demand from investors for products which “help them align their ethical and social priorities with the need for investment returns".

“Having run an ethical portfolio that has consistently outperformed its benchmark, it is clear to us that the former does not have to come at the expense of the latter,” he said. “With the support of EIRIS, we are confident that we can identify excellent investment opportunities to deliver outperformance within clearly defined ethical parameters."

The Royal London UK Ethical Equity Fund aims to deliver 2-3 per cent per annum in excess of its benchmark, the FTSE All-Share Index. Minimum investment for its retail share class is £1,000 ($1,637).