ISIS Asset Management, the investment services subsidiary of Friends Provident, is forecasting an increased supply of lower-risk socially responsible investment (SRI) funds in response to demand from consumers and IFAs.
The company is launching a new vehicle to this end itself, which will have a cash layer and certain unit value guarantees built in.
This is part of a broader trend IFAs should expect as providers react to demand for SRI funds that are less equities-based and hence meet risk profiles of more clients.
Although equities-based ethical funds have done well on a total returns basis over time when compared to market average returns, the heavy equities bias has turned some IFAs off the idea, ISIS says.
By spreading portfolios across more asset classes, it is thought more IFAs will take a look at the sector.
The current equities bias is added to by the smaller number of companies SRI vehicles can typically invest in, resulting in more concentrated holdings - where a single stock can make up more than 3% of a portfolio.
ISIS’ Stewardship fund manager Ted Scott says he currently has a “universe” of about 400 companies across all market capitalisation values to choose from that meet his ethical investmnt criteria. It is an admitedly small number compared to the thousands of shares possibly available to managers of non-ethical funds.
FP SRI manager Julia Dreblow says new charities and pension legislation will drive demand from investors encouraged to have a clearer view of the assets in which their money is invested.
A wider selection of SRI funds will also answer criticisms of a sector that remains without a single clear definition.
EU moves to define ethical funds have stalled, which Dreblow says is to the advantage of investors and providers, because it offers the possibility of a greater number of funds being designed to meet specific ethical requirements.
For example, one investor may not want to hold shares in a firm that uses animals to develop drugs, where another investor would want such shares in the portfolio precisely because the development of new medication is seen as an ethical benefit.
Offering choices in terms of SRI funds also means greater ability to meed demand from the two types of typical ethical investor: “dark green” and “light green”.
Additionally to supply issues, research conducted by MORI on behalf of ISIS and FP suggests two-thirds of consumers want IFAs to ask all investment clients if they have an interest in ethical funds when discussing investment options.
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