Do Ethical Investment Funds Necessarily Perform Worse Than Ordinary Investments?

Not necessarily, but compared to other types of investments, ethical funds are somewhat handicapped.  And not only by the restriction on choice.  For a fund to be able to choose which investments are truly ethical, a lot of time has to be taken reviewing the activities of potential recipients (companies) for your cash.  When you sign up for an ethical fund, you have to understand that the fund managers are not just given the responsibility of making sure that a company is run well, but they are supposed to make sure that the company truly meets the ethical criteria.

So in effect, for an ethical fund to be truly ethical the management charges will often be higher than you might expect from an ordinary investment fund (and higher management charges means less profit for individual investors).

That said, you would expect that, with the extra attention that the ethical review requires, that the fund managers should be that much better informed about the value of the investment.  The extra information could therefore turn into an advantage for the skilled share selector.