The global financial crisis has acted to make some socially responsible investment (SRI) funds less attractive to retail investors.
That is the bottom line of the latest Lonsec Australian and Global Equity SRI sector review, which found that Australian retail investors are still exercising caution about SRI — even as superannuation funds re-engage in the sector.
According to Lonsec, the sector is struggling to regain the attention of retail clients after a period of record growth peaking in 2007.
It said some fund managers offering both institutional and retail products had commented that improved market sentiment had brought renewed interest from institutional clients, which had yet to translate to the same levels in retail.
The Lonsec review, which awarded only two funds — BT Wholesale Ethical Share Fund and ING Wholesale Sustainable Investment Australian Shares Trust — its coveted ‘highly recommended’ rating, also noted that financial planners faced some challenges in meeting the needs of their clients because of the categorisation of some products and the lack of a uniform approach.
“Despite the progress and positive momentum for the sector generally, Lonsec has found that the area still presented challenges for those providing financial advice,” the review said.
“Investors in this sector are broadly grouped together under a ‘responsible investment’ categorisation, but they bring different investment motivations, which can make it tricky for advisers to confidently select investment managers.”
To assist in the process, Lonsec developed its own categorisation of products as ‘light green’, ‘mid green’ and ‘dark green’.
On the key question of whether investors were at a disadvantage because they had pursued SRI funds, the Lonsec review concluded that the sector had held up reasonably well on the basis of two and three-year returns.
“Responsible investment performance largely holds up well in comparison to the benchmark, outperforming over two and three years to September 2009,” it said.
