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ethical funds still represent tiny portion of retail market

December 2004

Socially responsible investment funds account for less than half of one per cent by value of all European retail funds, according to a study of green, social and ethical funds in Europe.

The study, produced by the Italian SRI research body Avanzi for the 11-strong Sustainable Investment Research International network of SRI research organizations, found that while SRI funds grew in value by 57 per cent in the 12 months to June 2004, they ‘still make up a very limited portion of all [retail] funds in Europe’, at 0.47 per cent of total assets.

The researchers took a relatively strict definition of what constitutes an ethical fund, considering only funds marketed to the general public as SRI products and using social, environmental or ethical screens. This excludes the institutional market, which has an estimated value of €336bn ($440bn, £235bn), and specialist clean technology funds.

The 354 retail funds identified were worth €19billion at June 2004. This compares with a figure for the SRI retail sector of €12.2bn a year previously and €11bn in June 1999, when SiRi first began compiling figures. Among the 15 countries studied, retail funds domiciled in the UK held the lion’s share of SRI assets (36 per cent), followed by Italy and Sweden, each with more than ten per cent. Austria and France were the most dynamic markets, with the number of SRI funds available to the public growing there by more than a quarter in the 12 months to June 2004.

In financial terms, SRI fund managers outperformed their mainstream counterparts in three out of six asset classes. SRI funds specializing in bonds and fixed income securities over the 12 months to June 2004 generally showed returns of 1.1 per cent above those funds not using SRI techniques, according to SiRi.

Mark Gull, fund manager of the Morley Sustainable Future Corporate Bond Fund, said the most likely explanation for the outperformance was a technical one. ‘This is really not one market, but two. It is probable that the SRI funds [in the Euro Global Bond category] had slightly more money in the high yield universe than in investment grade’. This implied that they carried more risk.


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