Impact-focused sustainable trusts capture investors’ attention

Coinciding with the UN’s annual climate conference, COP27, interactive investor outlines the most-bought sustainable funds on its platform, year-to-date.

• Of ii’s Sustainable Long List, Greencoat UK Wind, The Renewables Infrastructure Group, and Gore Street Energy are ii customer’s top picks for 2022 so far
• Six of the 10 most-bought trusts overall (year to date) on ii’s Sustainable Long List invest in some form of renewable energy infrastructure such as solar or wind
• However, specialist alternative energy open-ended funds prove less popular with ii investors throughout 2022

Coinciding with the UN’s annual climate conference, COP27, which began on Sunday 6 November, interactive investor outlines the most-bought sustainable funds on its platform, year-to-date. And only two of them are open-ended funds, with the rest being investment trusts.

Policymakers and world leaders have been gathering in Egypt to discuss how countries and various industries can collaborate on climate action, which has shone the spotlight on sustainability. 

• Discover more: ACE 40 Sustainable Investments List 

This year’s conferencecomes after the UK’s presidency of COP26 last year, as well as a wave of new regulatory initiatives making it mandatory for large UK companies to disclose their climate impact, and a recent Annual General Meeting (AGM) season seeing a number of environmental social governance (ESG) issues.

The sustainable investment funds and trusts that ii customers have been buying in 2022 are below and in rank order, as defined by ii’s Sustainable Investing Long list. ii works with independent sustainable experts on this list, SRI Services, and it includes funds and trusts that publicly state that they have ethical, social, environmental, sustainability screened, themed or responsible investment strategies as well as others we believe to be relevant to this area. So, it is a good proxy for the sustainable sector at large.

Most-bought sustainable funds and trusts on ii from 1 January 2022 – 7 November 2022

Source: interactive investor (Sustainable Investing Long List).
Note: *an investment company, despite the name ‘fund' in the title

Commenting on the data, Kyle Caldwell, Collectives Specialist, interactive investor, says: “While over the past couple of years there’s been plenty of new ‘green’ fund launches or existing funds given a sustainability makeover, it is interesting to see from our data today that investment trusts specialising in a certain area – renewables - have been more popular with our customers. It seems that it is those with an impact focus that are winning hearts and minds, and arguably easier for people to understand the investment criteria. 

“Six of the 10 most-bought trusts overall, on our Sustainable Long List invest in some form of renewable energy infrastructure, such as solar or wind. In contrast, specialist alternative energy open-ended funds are few and far between.”

Caldwell adds: “As well as investors looking to ensure their money is invested in businesses ‘doing good’ in some form or other, the high yields on offer amongst renewable energy investment trusts is a key attraction, particularly at time when inflation is at its high levels in decades and investors are hungry for income. All of the six trusts have dividend yields of 5% or higher: Next Energy Solar Fund (yielding 6.9%), Bluefield Solar Income Fund (yielding 6.3%), Gore Street Energy (yielding 6.2%), JLEN Environmental Assets Group (yielding 5.9%), Renewables Infrastructure Group (yielding 5.2%) and Greencoat UK Wind (5.1%). The latter, which owns wind farms throughout the UK, intends to continue increasing its dividend in line with retail price index (RPI) inflation.

“Another factor at play is that renewable energy infrastructure funds have performed well in 2022, but the same cannot be said for many sustainable funds. High inflation and rising interest rates have benefited value shares at the expense of growth shares. Many value shares are regarded as ‘sin’ stocks – miners, energy and tobacco – which sustainable funds typically steer clear from. At the same time, sustainable funds tend to favour technology stocks due to their lower carbon footprints and the social good they often provide. However, investing in future-facing growth companies has this year proved to be a headwind to performance, and as with any investment – it is ultimately a long-term game.”

Where are the barriers to investing sustainably?

In ii’s recent Great British Retirement Survey, it was evident that retail investors are interested in investing more sustainably, but information remains an issue. 

This has been a key focus of the regulator, and an area where ii has been vocal; with the FCA just recently announcing new rules for investment fund labelling, in a bid to make them more transparent and clearer for private investors.

Investors need to be confident that the sustainable funds they are choosing are likely to meet their green expectations. In this same survey, the largest of its kind with over 10,000 respondents, it was clear that a key concern is ‘greenwashing’ and for many people, the hurdle is knowledge.

These are two examples of verbatims from ii’s research:

“I wanted to choose sustainable investments but couldn’t find enough information.” 

“I find that there is little information about ‘green’ pensions and ESG pension investing, and more detail and choice from pension firms would be helpful – not put in complex financial jargon.”

In ii’s research, two in five (41%) of our general population sample* think all pensions should be invested sustainably. Women who responded to the survey (from the same general population sample) were more in favour (44%), as were young people (43% of 22-to-34-year-olds). 

However, when it came to implementing this at the portfolio level, it became trickier. For example, ii’s same research also demonstrated how fewer than half of those who favour all pension investments being sustainable have actually taken action to move their pensions into sustainable investments. 

One in four (26%) told ii they did not know the option exists, and nearly one in five (19%) told ii they could not change their pension. 

Younger investors seemed to make making more changes; roughly three in ten (28%) of respondents aged 22 to 34 are making an active change in favour of sustainability, compared with around one in 17 (6%) of people aged 56 to 65.

Dzmitry Lipski, Head of Funds research, interactive investor, comments: “Private investors are vital stewards of capital. Where we deploy capital is hugely influential to the world around us, and with COP27 capturing the attention of policy makers and industry representatives alike, it is likely that some investors will be assessing how their portfolio is, or is not, contributing to the all-important green transition.

“However, it can be tricky area to navigate and therefore ii maintains that it is crucial that there are tools for people who want to invest within a sustainable framework, and that’s where our ACE 40* list can be a help in the research process. Though still a relatively small universe, the scope of choice for investors wanting to invest sustainably is growing choices are growing. There’s plenty of great long-term sustainable options out there, as highlighted on our Sustainable Long List, and for a more specific list – broken down into core, low cost, adventurous, income and smaller company options, ACE 40 can be a great place for investors to look.”

*ACE 40’s recent annual review

Earlier this month, ii made some changes to its sustainable rated list - ACE 40, in partnership with Morningstar Manager Selection Services Group*. Morningstar and ii’s fund research team work closely together to track existing and new fund performance. Thus, curating the ACE 40 rated ist highlighting what ii believe to be the best-in-class.

• Removed: Fundsmith Sustainable Equity
• Removed: Baillie Gifford Global Stewardship 
• Added: Schroder Global Sustainable Value Equity

Over the tough year to date, a third (33%) of ii’s ACE 40 constituents were first or second-quartile performers against industry peers (both sustainable and wider industry). Over three years, 59% of ACE 40 constituents were first or second quartile, rising to 71% over five years.

*Morningstar Manager Selection Services Group assumed day care of ii’s rated lists at the beginning of this year. Morningstar works in accordance with ii’s methodology, and is overseen by Dzmitry Lipski, Head of Fund Research at ii.

*The Great British Retirement Survey research sample

In all, we have surveyed 10,000 people, using the award-winning, strategic insight consultancy Opinium Research between 26 May and 29 July 2022. Half our responses came from Opinium’s nationally representative sample: 5,230 UK adults 22+. The research was weighted to be nationally representative, on age, gender and education status, region, employment status and ethnicity. The other 5,000 responses came from our own interactive investor community, and we have reported the findings separately, with some interesting comparisons.