The Association of Investment Companies has hit back against claims investment trusts are less ESG friendly than Oeics and exchange-traded funds, arguing closed-ended funds are already “punching above their weight” and pioneers of ethical investing.
Research from D2C group Interactive Investor called out closed-ended vehicles for lagging behind their open-ended counterparts when it comes to ethical investing.
Of Interactive Investor’s 140-strong ethical universe, which includes trusts, funds and ETFs, only 17, or 12%, are investment trusts.
Except for the Pacific Assets trust, managed by Stewart Investors which is known for having a sustainable house strategy, all the investment trusts on the list are from specialist sectors, Interactive Investor said.
“If more than 12% of collective investments with an ethical tilt are investment trusts, we’ve been hard pressed to find them,” said Moira O’Neill, head of personal finance at Interactive Investor.
Ethical investing too big for trusts to ignore
The lack of ethical closed-ended options is becoming a problem as clients demand for these products continues to grow, O’Neill said.
The release cited Nippon Active Value having to stall its £200m flotation on the London Stock Exchange after investors demanded a formal environmental, social and governance statement from the trust as evidence the industry need to get with the times.
“Our customers are big fans of investment trusts and ethically-minded customers may well like to have a balanced portfolio made up entirely of ethical investment trusts if more variety were available,” said O’Neill.
‘We are punching above our weight’
The Interactive Investor release prompted some tough words from AIC communications director Annabel Brodie-Smith (pictured) who argued that, as a smaller proportion of the ethical universe, trusts were already “punching above their weight”.
“Investment companies including VCTs make up only 8% of the funds universe (395 companies out of 4,988 funds, investment companies and ETFs),” Brodie-Smith said.
“So, it’s misleading to say investment companies are underrepresented on the list compared to open-ended funds and ETFs.
“Of course, we hope to see more investment company launches in this area,” she continued, “but as things stand, we are punching above our weight.”
Broad-based ESG trusts hard to find
Brodie-Smith went on to say that investment companies have been at the forefront of investing in renewable energy infrastructure and green technologies. The renewable energy infrastructure investment company sector raised £2.4bn last year through IPOs and fundraising by existing companies, she noted.
In addition their closed-ended structure makes them a “natural home” for hard-to-sell assets like social housing, Brodie-Smith said.
But O’Neill argued that broader-based ESG options are still harder for investors to find.
“So, for now at least, even the staunchest investment trust supporters who want to have a well-diversified ethical portfolio will have to look to the funds sector to fill the gaps,” she said.
