Although SRI has split the industry for some time, demand for ethical products is on the rise. Charlotte Richards discovers why.
Ethical and socially responsible investing (SRI) has, for a long time, divided the industry. However, popularity of SRI products is increasing.
According to the latest Eurosif (European Sustainable Investment Forum) European SRI Study in 2010, the total SRI assets under management in the UK, as of 31 December 2009, was £938.9bn, an increase of 19% from the end of 2007.
Today, more companies are observing ethical and environmental strategies than ever before.
Mark Hoskin, managing partner at financial planning and wealth management firm Holden & Partners, says one of the main problems in the past was the term ‘ethical investing’.
The variation of funds within the sector has always been confusing to managers and advisers, he says. Scott Spencer, manager of the £26.5m Aberdeen Multi Manager Ethical portfolio, adds people have different perceptions of what is and what is not ethical.
However, he believes there are a number of exciting buying opportunities in the space.
He says: “There are opportunities for clients to make money whether they are ethical or socially responsible; dark green or light green.” He adds: “Within the sector, we are seeing a continued breadth of more SRI funds. Most of these new funds are overseas and in Europe.”
For those new to the sector, Hoskin recommends investing in a multi-asset fund that will have holdings in a range of ethical sectors, such as water, clean energy, forestry and agriculture. He says the key to investing in ethical funds is to look for managers who are efficient in looking into the ethical or environmental markets. Themed funds, such as the environmental Schroder Global Climate Change fund, have managers with expertise in such a niche area, he says.
Alternative energy
For Spencer, those who want to buy at low prices might want to consider alternative energy as a theme. “If you believe we will eventually have to move to use wind and solar power, you can pick up some alternative energy companies or funds at attractive prices as they are currently regarded as volatile,” he says.
One common argument against ethical investing is that the extensive screening process used in SRI funds results in a restricted investable universe, which reduces diversification, increases risk and damages potential returns.
