InvestmentsMay 3 2023

‘Standout’ investor appetite for responsible investment funds

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‘Standout’ investor appetite for responsible investment funds

Responsible investment funds grew as an overall share of funds under management in the UK last year, driven in part by the number of new fund launches.

The number of responsible funds in the UK rose 31 per cent in 2022, according to data from the Investment Association, taking the overall number to 402.

In a year where total funds under management declined 14 per cent, due to a combination of outflows of £25.7bn and a drop in bond and equity valuations, responsible investment funds grew as a share of total funds under management.

Investment in responsible funds grew in 2022, despite a wider decline in FUM

Source: The Investment Association

Some £5.4bn was invested in responsible funds on a net basis in 2022, taking the vehicles to 6.7 per cent of total funds under management, a rise of 1 percentage point.

“Responsible investments remain a key area of activity for new fund launches, which goes some way to explaining the growth in the responsible investment share of the funds market,” the IA said in its ‘Year in Review’ report, released last week (April 27).

The report noted that just over half (56 per cent) of new responsible investment funds in IA data last year were domiciled overseas. 

“Whilst in 2022, there was a fairly even split between funds domiciled in the UK and overseas coming into the IA’s data, we are monitoring how this progresses in 2023 as managers launching UK domiciled funds wait for clarity from the FCA’s policy statement on Sustainable Disclosure Requirements,” the IA said.

Ross Lacey, chartered financial planner at Fairview Financial Management, said he thinks there will be continued popularity for responsible funds as investors are keen to feel like they are doing their bit to support companies who are doing good things. 

“There can also be a good investment case for investing in companies that are potentially able to charge a premium price for their goods and services which could translate into higher earnings,” he said.

Channel breakdown

Flows into the ‘other UK intermediaries including IFAs’, which covers off platform or captive platform advised assets, went from being the second largest source of inflows in 2021 to the largest source of outflows last year.

Investors withdrew £11.7bn in 2022, compared with a £16.6bn inflow in 2021. Outflows from the channel were continuous during the year, the IA said, climbing steadily to reach nearly £5bn in Q4.

UK adviser and UK direct platform net sales 2020-2022

Source: The Investment Association

The IA said advisers can have an “important steadying” influence on investors in times of market volatility, 

“[Advisers encourage] encouraging them to remain invested investors to remain invested and to follow their long term financial plans,” the report said.

This can be seen in 2022, where up until June, adviser platforms remained in inflow despite the repercussions and shock of the war in Ukraine, whereas direct to consumer platforms saw outflows.