Ethical funds perform just as well as non-ethical ones, a new report looking at their relative performance over the past 10 years has found.

The report focuses on funds registered for sale in the UK and finds ethical investments broadly match non-ethical ones in UK and global equities, although European equities, excluding the UK, lag behind their non-ethical rivals.

'Socially responsible investment (SRI) funds have sometimes laboured under the misconception that investors sacrifice returns if they invest in funds with an ethical or SRI policy,' said Edward Jewson, chief executive of investment consultants Jewson Associates, which compiled the report. 'But our research suggests this is not the case over the long term.

'What we have found, however, is that returns from ethical funds in the UK are, to some extent, correlated with the performance of small- and mid-cap stocks, and so are likely to be more volatile.'

The report - compiled for Oxford University - finds that in UK equities, ethical funds outperformed the market on average and the non-ethical peer group over the past one, three and five years, and broadly matched the market and non-ethical funds over 10 years.

In global equities, ethical funds outperformed over one, three, five and seven years, but lagged modestly behind over 10 years. They outperformed non-ethical funds over all of these periods apart from five years. The report points to ethical funds' structural bias towards mid and small-cap companies as a key factor in determining their performance.