ESG Investing  

Ethical fund sales 'keeping lights on'

Ethical fund sales 'keeping lights on'
Jason Aldern/Bloomberg

The UK investment industry is being buoyed by inflows into ethical funds, according to the latest Investment Association data, with the ESG sector accounting for three quarters of net inflows to UK retail funds in November.

Some £1.9bn was invested in ESG funds in November, up from £1.5bn in October and £1.2bn in November 2020, according to the IA data released today (January 6).

But as there is little official guidance on what ESG entails, it was hard to know how much impact this would actually have on ESG factors.

Laith Khalaf, head of investment analysis at AJ Bell, said: "Ethical fund sales are keeping the lights on in the UK investment industry, accounting for three quarters of net inflows in November

“What is less clear is how much of this money is being directed into funds that are dyed-in-the-wool ESG champions, compared to traditional funds that have integrated ESG considerations into their investment process, which most would see as a less vigorous approach to investing ethically."

ESG ratings for funds have been questioned by experts, as the industry waits for national or international agreements on what should constitute an ESG fund.

Recently, warnings have been made that ESG ratings should be viewed as opinions, while others have lamented the lack of data available.

Outflows from UK and North America continue

Overall net inflows remained fairly subdued in November at £2.4bn compared to £1.7bn in October and £2.3bn in September.

A year previously, in November 2020, there were net inflows of £8.3bn.

The Global sector was the best-selling IA sector for the sixth consecutive month, with £760m in inflows.

Meanwhile the Volatility Managed and Mixed Investment 40-85% Shares sectors continued to be strong sellers, seeing £350m and £490m of inflows during November respectively, and having been in the top three selling sectors for six of the past eight months.

Asia, Europe, North America and UK funds all experienced outflows in November 2021, with the UK the worst-selling region with £755m of outflows. 

North America was the worst selling individual sector, with outflows of £426m as investors continued to flee UK and North American equities.

The outflows from the UK came as “little surprise”, said Khalaf.

“Investors have been shunning the domestic market for more than five years now, and this trend shows no signs of abating, despite the cyclical value stocks which populate much of the FTSE having an improved year in 2021," he said.

Slowdown in tracker investing

The data also showed inflows to tracker funds slowed, attributed to wider market uncertainty by the IA's chief executive.

Inflows into tracker funds dropped from £1.5bn in October to £758m in November.

Chris Cummings, chief executive of the IA, said US equities trackers and fixed income trackers were particularly out of favour. 

“Active management has remained attractive to investors in November, however it remains to be seen how investor attitudes will respond to the impact of the Omicron variant in December,” he said.