We asked market veteran Mike Fox, Head of Sustainable Investments, Royal London Asset Management, what is driving the expansion in values-based investing
Fund managers who've worked in values-based investing for many years say a light switched on for investors about 12 months ago. "I've spent most of my career being told our approach isn't a worthy way of investing," says Mike Fox, long-time manager of Royal London Asset Management's sustainable fund range.
Now almost everybody is talking about it and investment volumes are rising fast. (1) "Of about £3.5 billion AUM in our sustainable fund range, about half arrived in the last 24 months," Fox says.
The sudden interest is welcome but what flicked that light switch on and might it be turned off again? Fox, who has been part of the sustainability space since soon after joining the Co-op Group in 1999, says the answer has two elements.
Choosy consumers
The first is that sustainability is being accepted broadly as a social idea, helped along by David Attenborough's Blue Planet and Greta Thunberg's school strike. "Consumer-facing firms asking RLAM for investment say consumers now look beyond a product's utility to the environmental and social context," he says. If consumers are doing that with soap powder, food and energy suppliers, why wouldn't they do it with investments?
There was always one big reason: fear of compromised returns. But Fox says that advisers can now probe relatively long track records and "it's the potential for underlying alpha and outperformance in sustainable funds that's intriguing many investors."
"Advisors want to understand whether sustainability is a genuine market inefficiency that can be mined repeatedly," he says. If so, they can invest much more than the limited pot of money available for more traditional ethical funds, which focus on screening out certain industries such as tobacco or armaments.
Mainstream money
Fox thinks that "advisers and investors are starting to accept that sustainable funds are just one more style of investment, like income, growth, and value." They may soon become the financial equivalent of buying organic milk off the shelf at M&S - part of advisers' mainstream offering. But mainstreaming is far from complete. "We still get challenged on whether sustainable approaches have an impact on performance," he says.
(1): For example, see Anna Fedorova, One in Three European Equity Funds to be Focused on ESG by 2030, Investment Week, 6 November 2019. Mike Sheen, The ‘Greta Effect': Surge in Eco-awareness Driving ‘Most Significant' Period of ESG inflows, Investment Week, 23 September 2019.
Click here to read more on sustainable investing including: Are sustainable criteria potentially financial criteria in disguise?
For professional clients only, not suitable for retail investors. The views expressed are those of Royal London Asset Management and do not constitute financial advice. Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Unless otherwise stated, the information in this document has been derived from sources believed to be accurate as of October 2019. Information derived from sources other than Royal London Asset Management is believed to be reliable; however, we do not independently verify or guarantee its accuracy or validity. For more information on the fund or the risks of investing, please refer to the fund factsheet, Prospectus and Key Investor Information Document (KIID), available via the relevant Fund Information page on www.rlam.co.uk.
Issued November 2019 by Royal London Asset Management Limited, Firm Reference Number: 141665, registered in England and Wales number 2244297; The company is authorised and regulated by the Financial Conduct Authority. Royal London Asset Management is a subsidiary of The Royal London Mutual Insurance Society Limited, registered in England and Wales number 99064. Registered Office: 55 Gracechurch Street, London EC3V 0RL.
