According to the results from Research in Finance’s latest annual UK Responsible Investing Study (UKRIS)*, demand for responsible investing (RI) funds among retail intermediaries has unsurprisingly increased throughout 2022, and this looks set to continue over the next 12 months. However, this finding is tempered by the fact that a lower proportion of intermediaries believe RI is more likely to improve performance, compared to previous years.
Is perception enough?
The findings are reflective of how the RI market has developed and matured, but also of the difficult market conditions in the past year for RI funds, characterised by high oil and gas prices as well as market volatility.
As shown by the chart above, the proportion of intermediaries stating RI is more likely to improve performance has decreased year on year; now only 18% agree with this statement. Those more ambivalent, stating responsible investing could either improve or hinder performance, has increased from 45% last year to 57% this year. This could help to explain why a higher proportion of intermediaries now agree with the statements posed in a separate question such as ‘responsible investing isn’t suitable for my typical client’ and ‘responsible investing is an industry fad.’ It goes without saying that anyone making an investment is looking for a return on that investment; RI funds are no exception.
Decline and Fall?
The RI fund market is no longer the new kid on the block and it is clear that demand for RI investments from end clients is starting to taper off. Whilst 41% of intermediaries state that they have seen an increase in demand in the past 12 months, showing the continued appeal of RI overall, this is compared to 79% and 78% in the previous two years, as illustrated by the chart below.
Clearly demand cannot increase forever; investment managers now need to understand what specific asset classes are in demand from retail intermediaries and end clients, and where those gaps exist.
Yet another component of this cooling off is recent RI fund performance. Some RI funds have struggled due to the demand for oil and gas because of the Russia-Ukraine war, as well as associated macroeconomic developments. Performance is still very much king, meaning the meteoric rise of RI has been hampered in the short term.
As the RI market continues to evolve, the understanding of different terminology and solutions continues to improve and the UK and global economies recover, sentiment will undoubtedly shift again. Long term, sustainable performance will be led by those companies and funds which place environmental, social and governance (ESG) concerns at the core of their principles and proposition.
How Research in Finance can help
The current research findings, as well as including further detail on the above, also add context to what intermediaries determine to be most important factors and underpin where the investment landscape is currently placed. If you would like to know more about the UK Responsible Investing Study, our European Fund Selector Study or how to subscribe, please contact [email protected] or [email protected], who will be happy to assist.
*UKRIS is an annual research study, comprising both a quantitative online survey and a qualitative online community, among retail intermediaries. The study aims to uncover the key trends related to responsible investing as well as who the perceived market leaders are for different types of funds. The findings are therefore both important and actionable for investment managers. The Wave 4 online survey was conducted 9th-29th January 2023 among 227 retail intermediaries (100 DFMs and 127 IAs).