Rathbones' Jones: Five of the Best Ethical Bonds

Bryn Jones, fund manager of the £62m Rathbone Ethical Bond fund, shares his top five picks for ethical fixed income.

The fund originally targeted green investors but has received increased interest from the wider investment market.

It plays on three main themes - emerging market growth, regulatory change in the banking sector and increased use of public transport as petrol costs continue to rise.

Jones favours callable bonds, and Clydesdale Bank is a key favourite. "A similar Clydesdale bond was called in 2011, and we believe this one will be called next year. We bought this on attractive yields," said Jones.

Second in line is healthcare provider BUPA as its growth is linked to emerging markets, while the company also has strong cashflow generation and an attractive yield, the manager said.

Third in line is Standard Life. "This company had a good set of results and also offers emerging market exposure," Jones added.

The manager also likes telecoms giant BT. "This is an index-linked bond we bought on a real yield of 3%, and which pays a coupon of 3% + RPI inflation, which is a lot better the conventional BT bond."

Another favourite is a Lloyds floating rate note which the manager bought with a worst-case 4% yield to maturity in 2016. "If interest rates rise we get paid more than 4%, so it is a free option on rates rising. It may also get called early, so we have a free option on the call too."

Rathbones' Ethical Bond fund returned 23.3% over three years compared to a sector average of 18.6%, and 9.5% against an average 5.5% over one year, according to Morningstar.