Traditional assets shunned as managers eye ESG

Research from asset management consultancy Alpha FMC, published today (May 26), showed 40 per cent of asset managers listed environmental, social and governance investing (ESG) in their top three priorities for fund launches in 2020, while 53 per cent listed multi-asset funds.

Alpha FMC polled 17 major asset managers in February this year and found 59 per cent had seen a substantial increase in client demand for specialist ESG or responsible investing products, while 76 per cent had seen extra demand for ESG integration across their whole product range.

Environmental, sustainable and governance investing takes into account ESG factors alongside financial markers in the investment decision-making process. It has become a more commonplace part of the global investment space in recent years.

ESG has to form part of the solution nowTim Morris, Russell and Co

Martin Bamford, head of client education at Informed Choice, said: “ESG is definitely the hottest area of investing right now, with Covid-19 acting a catalyst to accelerate already gradual societal changes when it comes to the environment.”

Paul Stocks, director at Dobson and Hodge, agreed, adding ESG was “currently a hot topic” and had been “front and centre” of asset managers’ promotions over the past few years while Tim Morris, adviser at Russell and Co, said ESG “has to form part of the solution now”.

Alpha FMC’s research showed asset managers still struggled with aspects of ESG, however, such as the ambiguity surrounding ESG definitions and categorisation, as some 88 per cent of respondents backed the introduction of an industry standard taxonomy.

Mr Morris agreed with the findings, saying he would “certainly like” to see clear requirements in order for a fund to be classed as ESG.

More multi-asset

The growing popularity of multi-asset funds also seems set to continue as some 53 per cent of asset managers polled said multi-asset funds were in their top three priorities for fund launches in 2020.

According to the Investment Association, multi-asset funds accounted for 37 per cent of net retail sales in the UK in the year to February 2020.

Mr Morris said the rise in multi-asset was one that would continue, arguing that the increasing use of passives lent itself well to this style.

Meanwhile, although Mr Stocks said he liked multi-asset investing as “part of a broader diverse portfolio”, he warned investors needed “more diversification” in addition to that being provided within a multi-asset fund.

Attractive alternatives

Asset managers reported an increased demand across most alternative asset classes, according to Alpha FMC, including a particular focus on infrastructure, alternative credit and traditional private equity.

Some 60 per cent of respondents listed one or more alternative asset classes in their top three priorities for fund launches in 2020.

Mr Stocks said alternatives were likely popular as there seemed to be a “desire to try to diversify away from the traditional asset classes” and into areas deemed to be “less correlated”.

Asset managers also flagged challenges with investing in alternatives, however. More than two thirds (67 per cent) said they faced challenges in structuring new alternative products, and just over half (53 per cent) agreed the speed of their alternative product development was a barrier to entry.

Jason Hollands, managing director at Tilney, said asset managers looking to launch alternative, ESG or multi-asset funds “did not surprise” him as it was “more of the same”.

He added: “The bigger issue is whether there will be many new product launches at all in 2020 given the current, challenging economic climate. 

“It just might be the case we see more fund closures than launches, as firms take a closer look at their cost lines and rationalise their fund ranges.”

imogen.tew@ft.com

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