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Green day

Investors are putting their money where their “green” mouths are, according to IFA Promotion. IFAP, which represents 9,000 firms across the UK, claims more investors are developing a social conscious after enquires it received for IFAs which provide ethical investment advice surging by more than 100 per cent in the past quarter.

IFAP says 1,933 people searched its directory, www.unbiased.co.uk, for an ethical investment IFA member in the past quarter, up from 896 during May to July last year.

But several IFAs told Money Marketing that there had been no increase in interest for ethical funds, largely because of perceived underperformance.

They say ethical funds have found it more difficult to outperform general funds in the past three years because they have been unable to capitalise on the boom mining stocks and strong growth from the tobacco sector.

Bestinvest investment adviser Justin Modray says the number of people enquiring about ethical investments has only slightly increased in the past 12 months and the number of clients taking up ethical investments remained static at about 5 per cent.

Modray says: “From our point of view, we have not noticed a change in appetite for ethical investments. The biggest issue is the lack of diversity. They obviously have to avoid tobacco and mining stocks and it is harder to pick a winner because there is a much smaller choice of funds.”

But the amount invested in ethical funds is clearly on the rise, according to London-based non-profit sustainable investment specialist Ethical Invest- ment Research Services.

Eiris figures show that the amount invested in the UK’s ethical retail funds passed 6bn at December 31, 2005, with less than 1.5bn invested ethically in 1997.

Head of international relations Stephen Hine says the increase in fund flow correlates with the increase in ethical consumerism. He says more people are better informed about the impact that their spending and investments can have and invest with their conscience.

Jupiter Ecology fund manager Charlie Thompson says there has been a significant increase in green fund flows. He says: “We have seen a significant increase in gross sales. They are up probably close to 100 per cent since the beginning of the year.”

Thompson says his fund has managed to perform well despite the absence of mining and tobacco stocks.

He says: “There are many different types of ethical funds and they all have their subtleties. While we can not invest in mining and tobacco, we look to find smaller, innovative companies that will grow quickly. We look for trends and buy in to them early.”

Thompson says one of the reasons for growth in the ethical investment market was an increase in the fund performance, which has been generated by growth from environmentally-friendly organisations such as organic food retailers and alternative energy providers.

He says: “One of the reasons we have seen a marked increase in the fund is because we have had strong growth across the board.”

Thompson says more people are aware of climate change and higher energy costs and are investing accordingly. The awareness of environmental issues have really taken a step up in the UK in the past six months. It is being fuelled by higher energy costs, which is improving the relative competitiveness of alternative energy companies,” he says.

Hargreaves Lansdown head of research Mark Dampier says alternative energy groups have become more interesting and exciting to investors because their share prices are enjoying good growth due to anticipated demand for their products as nations across the globe struggle to solve energy and water problems.

But he says that while there has been an increase in people seeking environmentally-friendly investments such as alternative energy, there has not been a rush toward ethical investment funds. He says: “From our point of view, we have not had hundreds of calls from people saying they want an ethical or environmentally-friendly fund.”

IFAP says the number of its members listing ethical investment advice as one of their top eight business areas has increased by 33 per cent in the past year.

It says 10 per cent of IFAP members were now genuinely focused on ethical investments compared with 8 per cent a year ago and 6 per cent three years ago.

A factsheet recently produced by IFAP for investors interested in ethical investments says ethical funds have performed largely in line with their peers over the medium term, “suggesting that many funds that have strict screening policies have not damaged their investors at all”.

IFAP says there is some mileage in the argument that ethical funds do not perform as well because they omit tobacco, gambling and mining companies but it says by investing in the best of breed companies, some ethical fund managers can “make a difference while giving investors access to possible outperformance”.

Chief executive David Elms says while ethical investments were less well known, they were rising up the agenda for UK investors.

Elms says: “Because we deal with over half a million requests for IFAs a year, we can confidently report the advice areas consumers most demand and ethical investment is without doubt proving more popular.”

Eiris says there are about 80 ethical funds in the UK, with three new funds launched this summer, including one from King & Shaxon, while it says SVM Asset Management has set up an environmentally- friendly focused fund.

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