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Who’s responsible for the £33bn?

By: Annalise Toberman

05/10/2020

Net sales for retail responsible investment funds were a staggering four times higher in the first half of this year, compared with the same period in 2019.

Inflows saw responsible investment FUM reach £33bn in June. That’s from the Investment Association’s (IA) recently released Investment Management in the UK 2019-2020 report.

The growth in sales and assets we’re seeing is indeed impressive. Yet responsible funds remain a footnote in relative terms, making up just 2.5% of retail FUM. The spike in investment seen in the last 18 months must be treated as a starting point, not the whole event.

Where have the retail flows into responsible funds come from? And who will propel them forward?

Private investors are definitely becoming more familiar with the concept of responsible investing (RI) and open to investing in responsible funds. Our recent Private Investor Pulse survey of 305 investors (September 2020) found that over a quarter (27%) profess to hold such funds – up from 12% in December 2018. The survey also highlighted that investor recognition of the acronym ‘ESG’ has improved dramatically over the period and that – no doubt related to this – a much greater proportion (56%, compared to 25% less than two years ago) have noticed articles on RI online and in print.

The likes of Hargreaves Lansdown and Interactive Investor are evidently strong influencers when it comes to RI. In addition to providing more information on the subject, they have made it much easier for their users to find and research responsible funds. Hargreaves Lansdown includes a category for such funds in its Wealth Shortlist, as well as research notes on other funds that haven’t (yet) made the shortlist; Interactive Investor boasts an ethical investments long list and a shortlist of 30 ACE funds – ACE standing for Avoids, Considers, Embraces. The Share Centre enables investors to filter funds by responsible investment themes such as “water & waste” and “active shareholder engagement”.

Yet while we expect that responsible fund sales on DIY platforms have picked up, a quick search of the major DIY investor platforms’ monthly best-seller lists is very telling: the only responsible fund name that features is Baillie Gifford Positive Change, often sitting in the reassuring company of several other Baillie Gifford funds. Does the popularity of the Positive Change Fund reflect growing demand for products that offer a positive environmental or social impact? Does it speak to general investor goodwill towards the Baillie Gifford brand, bolstered by strong performance of its growth, tech-leaning investment style? Or a potent blend of the two?

If the DIY investors can’t be wholly thanked for growing responsible fund retail sales, intermediaries must be buying. Royal London Asset Management and Liontrust saw big inflows in Q2 – these are the two brands that DFMs and advisers highlighted as responsible market leaders in Wave 1 of our UK Responsible Investing Study (UKRIS).

That same study, conducted in November 2019, revealed many professional investors’ knowledge of RI to be patchy and riddled with misconceptions. The most ardent sceptics didn’t see the value of considering ESG, and believed client demand to be very low and justifiably so.

We think that intermediaries’ understanding of and, in turn, sentiment towards responsible investing have markedly improved since then. Even if some advisers remain unconvinced, their clients are much better informed than they were and therefore more likely to broach the subject. In any case, for retail sales to continue to move in the right direction, advisers and DFMs need to be on board.

Wave of 2 UKRIS launches later this month. For an overview of the research, please click here. Tracking the shifts in responsible investing perception and behaviour is ever more important for asset managers, as is keeping a close eye on how professional investors regard your brand’s RI credentials versus the competition’s.

If you would like to know more about UKRIS and how to subscribe, please contact Richard Ley or Annalise Toberman.

Annalise Toberman

Annalise Toberman

Annalise has spent her working life intensively researching B2B and B2C audiences in the financial sector. A keen qualitative researcher, she has conducted hundreds of interviews across advisers, DFMs, fund houses, platforms, pension providers and consumers.

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