Greater demand from investors for impact funds has given a boost to assets under management in the sector, according to the latest Good Investment Review from Good With Money and 3D Investing.
The comprehensive study shows an 11 per cent increase in assets under management in the 3D universe of 196 sustainable and ethical funds, rising £10 billion to £96 billion since the last review (June 2017).
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Developing sectors contributing to this growth include infrastructure, largely social housing, renewable energy and healthcare.
For the first time, the review includes a fund that is not an official impact fund, and yet does have a positive impact. The popular Woodford Funds’ Patient Capital Trust, with £852.9 million under management, does not have an impact mandate, however because of its strong history of investing in pioneering healthcare companies, 3D Investing awarded the fund three out of five stars for impact.
The review includes research from discretionary fund manager, Pennine Wealth Solutions (PWS), which reveals a disconnect between the increasing numbers of investors interested in impact funds, and the number of advisers offering them.
In the PWS survey, 58 per cent of respondents said that they would invest positively if the process was made straightforward.
Public surveys have repeatedly shown a high level of interest in positive and sustainable investing, yet the actual take-up has remained stubbornly below the purported demand. There are a number of contributing factors, but low adviser interest is “undoubtedly one of them”, according to PWS.
According to John Fleetwood, founder and director at 3D investing: “There is a pervading view that values-led investing is still about negative exclusion. The market has become increasingly complex and unless advisers have a personal interest in the area, positive investing is not likely to be viewed favourably.”
Rebecca O’Connor, co-founder and editor of Good With Money, said: “There is a chicken and egg problem with demand for impact investments. If investors know about them, they want them, but it is hard to demand something if you don’t even know it is there. It is up to the investment industry – advisers and platforms, to make the benefits of impact investing more apparent to their customers.”
Senior partner at PWS, George Critchley, said: “Many advisers are not in touch with how their clients feel about investing for positive social impact. This survey provides an opportunity for advisers to engage with their clients and to develop a new area of business that is good for everyone.”
The Good Investment Review also includes interviews with three top sustainable asset management firms: Liontrust, Rathbones, and Triodos Investment Management.
For Simon Clements of the Liontrust SF Managed Fund, aligning their thematic approach with the sustainable development goals has been key to increasing investor take-up. In terms of themes, energy efficiency has proved successful. He lists a range of companies in this sector that have benefited, including Kingspan in Ireland with leading technology in insulation, Daikin in Japan with similar leading technology in air conditioning and Equinix in the US that provides the same solutions in data centres for the technology industry.
The Review also looks at the Sterling Bond Funds sector in particular, noting that the average ethically screened Sterling bond fund has outperformed the average fund in its sector. Furthermore, funds with a rating of three stars or more have a better performance than the average ethical/sustainable fund, demonstrating that positive impact need not come at the expense of financial returns.
Bryn Jones at Rathbones said: “The positive element of the fund’s ethical research process recognises key global sustainable development trends and identifies investee companies’ exposure to these. Many of these trends overlap, but can be roughly divided into two groups: environmental sustainability and social development.”
3D Investing has worked with Pennine Wealth Solutions to develop a managed solution that follows the 3D principles, for investors with as little as £5,000.
Want to know more about impact investing? Join a live lunchtime debate with experts from Impax Asset Management, Triodos Investment Management and WHEB Asset Management, on Wednesday October 11 at 12.30pm, on our Youtube channel.