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Weekly Comment - Week 31, 2017The three letters SRI have for some time and for a particular demographic, conjured up images of performance cars from a prominent UK car maker. Over time, however, this acronym is increasingly used to mean Socially Responsible Investing, a method of investing that combines the desire to make money with the impulse to do good.

Also known as ‘ethical’ or ‘green’ investing, SRI has origins in the religious teachings of the 1750s when the society know as Quakers banned members from participating in the slave trade. This approach has since evolved from strategies focused on the avoidance of holdings in companies operating in industries such as gambling, tobacco, alcohol and arms – to one rewarding businesses that score highly on ESG metrics (environmental, social and governance).

A traditional view has been if you invest in line with your ethics you will to some degree, sacrifice return. This need not be the case.

According to Jon Hale, head of sustainability research at Morningstar, academic research has shown that stock exclusion can be a negative factor in performance. He told CNBC’s Constance Gustke: “The ESG performance of companies appears to be something that can generate value in a portfolio; traditional exclusion can be a drag. The process of collecting and understanding information on company performance on ESG has definitely entered the realm of big data… Going forward it may be more likely to result in outperformance.” Hale said.

Ernst & Young’s recent report on sustainable investing references a study by Morgan Stanley which evaluated more than 10,000 funds and managed accounts, which showed that “Investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments.” This is on both an absolute and risk-adjusted basis, across asset classes and over time.” This study illustrates the performance of the MSCI KLD 400 (an index containing firms that meet a very high ESG standard), which achieved an annualised return of 10.2% since 1990. During the same period, the S&P 500 achieved an annualised return of 9.7% – a difference of 45 basis points.

So if, as evidence suggests, there is no significant performance drag from investing in a socially responsible manner (as long as fees are not too high), the demand for SRI investments looks set to continue: a Morgan Stanley study reports 84% of millennials cite investing with a focus on ESG impact as a central goal. Judging by the increasing number of fund managers we meet who are keen to push their newly-adopted ESG credentials and processes, the supply side of our industry is certainly moving to meet this demand.

In June, MitonOptimal’s UK subsidiary Coram Asset Management acquired Minerva Fund Managers to expand its offering into the model portfolio market and add Minerva’s expertise in socially responsible investing, built up over 20 years.

More information on MitonOptimal’s SRI models will follow soon.

The rise of Socially Responsible Investing




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