Though there are those who want mileage from being seen to be responsible, for most, SRI funds must stand on their own two feet. Craig Drake.
SUSTAINABLE investment, or socially responsible investment (SRI), has been on a rapid ascent for the last decade, but outside of providing dinner party credibility for the chattering classes wanting to appear to be doing the right thing, are SRI funds worth a look for investors who are concerned with returns and growth?
For all the talk about the ability of sustainable development funds to hold their own, the chart on the bottom right, which tracks the Dow Jones sustainability index against its global index, will make for awkward viewing.
Clare Brook, Fund Manager of the IM WHEB Sustainability Fund is buoyant with regards to this big gap between global funds that include big miners and refiners of fossil fuels and those that focus on so called clean energy: “we see this gap as an exciting opportunity for the clean energy sector, which has plenty of ground to make up.
A strong indication that this sector is offering exceptional long term value was seen earlier this week with the news that Iberdrola, the parent company, has launched a bid for 20 per cent free float of Iberdrola Renovables, its listed subsidiary. IBR is currently one of our largest holdings, so good news for the IM WHEB Sustainability Fund.”
However, Gemma Godfrey, head of research and chair of the investment committee of Credo Capital advises restraint in the hyperbole of clean, green and socially responsible claims made by funds: “There has certainly been a rise in demand for SRI in recent years, which has doubled since 2007, though has done so from a small base. For the majority of investors who will be focussed on capital preservation and growth, it makes sense to invest in companies that are preparing for the future. However, there is often a discrepancy between people’s expectations and reality. At the same time, funds managers will have different views on what constitutes social responsibility and so you should look deeper into what the fund may contain.”
There are signs that FTSE 100 companies, for example, are making strides to bring themselves into line with criteria set down by many SRI funds, however this is yet to boost the overall perfomance of those funds. It is, however. a different story on the faith based side of SRI funds, where the Dow Jones Shari’ah compliant Islamic market index has for periods actually outperformed the global index benchmark. As a matter of faith, a Muslim cannot lend money to, or receive money from someone and expect to benefit; gains from interest are not allowed. To make money from money is forbidden and this precludes funds from investing in retail banks. Returns from Shari’ah compliant funds can only be generated through trade and investment in assets, but that is not to say that they cannot keep up. Axel Lomholt, head of product development for iShares EMEA says in relation to their performance: “Our aim is that Shari’ah compliant ETFs should track a non-Shari’ah compliant index reasonably closely over time. iShares to date have produced Shari’ah funds which seek to target the risk and return profile of some of the leading indexes (i.e. Shari’ah Compliant S&P-500). The aim of Shari’ah funds is to ensure Shari’ah investors are not ‘worse off’ because they cannot invest in certain sectors. However, Shari’ah compliant funds may perform better when the names excluded are underperforming the index.”
According to EIRIS, a provider of independent research into the ethical performance of companies, there are an increasing number of people investing in Shari’ah compliant fund for non faith based reasons. Interestingly, though in many cases the funds will go beyond the restrictions employed by fund managers of sustainable funds, they manage to vastly outperform them. As such, those looking for investment with strong returns might take a look at the large range of Islamic funds offered.
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