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Editor's Letter: June 2017

Did something happen in November that might have caused a number of investors to suddenly become socially conscious?

In this issue we reveal a bit of ongoing research we’ve done here at on socially responsible investing.

It’s a trendy topic, true. As advisors, you no doubt see, like we do, the ebb and flow of certain themes emerging from the asset management industry as it scrambles to stem the bleeding of money to low-cost index funds.

A few years ago, alternative investment strategies in mutual fund wrappers — or “liquid alts” — seemed to be everywhere. It was the top topic at investment conferences and the subject of heavy marketing campaigns. (Our investment columnist Brad Zigler looks at the performance of some of these strategies over the past year in this issue.)

More recently, “smart beta” funds, or funds that rely on alternative weightings of an index based on factors like size, momentum or value, became the topic most marketing departments were keen to talk about.

Now it’s socially responsible investing’s turn. According to our reporter, there were 36 new SRI funds launched in 2016, 38 percent more than the year before. In the first four months of 2017 alone, 17 new funds joined the ranks.

And here is an odd twist: 74 percent, or $4.3 billion, of the $5.8 billion that flowed into SRI funds in 2016 all came in one single month — December. Did something happen in November that might have caused a number of investors to suddenly become socially conscious? Another $2.5 billion came in during the first four months of this year, more than came into the SRI space in all of 2015.

It’s a trend, yes, but it remains to be seen if it lasts. Our research shows that advisors, anyway, haven’t moved much on socially responsible investing over the past year. Most are aware of it, and some use it, but the numbers aren’t necessarily increasing or decreasing in any meaningful way.

No doubt performance will have a lot to do with the tenure of these new entrants. It’s an open argument whether good performance and socially responsible investing can co-exist in the same fund, or whether you need to sacrifice some gains to invest ethically.

Though the accelerated trend of fund launches may slow, I think this is one investment theme that will last, and not just for young investors usually credited with being the drivers of SRI. As the world seems to get more hostile, and governments prove inept at solving the big problems, more people will find it an appealing option. Along with whales and trees, it might even save a few jobs on Wall Street.


David Armstrong


TAGS: Industry
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