SRI funds
SRI funds are pooled investment vehicles that enable individual and institutional investors to invest in stock portfolios managed according to a variety of SRI strategies.
Funds can deploy one or more of the 21 different SRI strategies (identified in SRI Primer). Indeed it is usual that a number of SRI strategies are deployed within a single fund – such that a ‘best-in-class’ fund may also apply some ethical screens, allocate a portion of its assets to clean technology stocks and actively engage to encourage corporate improvement.
Investment styles
SRI strategies are applied to a range of different investment styles including:
- Active management - Most SRI funds are actively-managed and are based on the premise that sustainability analysis is one factor that can enhance the performance of an active fund manager
- Passive management – funds that track all of the major SRI indices – both screened and thematic – are widely available
- Quantitative management – in spite of the exertions of ratings agencies to promote the concept (and in spite of its extensive discussion in academic research and in the media) very few SRI funds are managed on a quants-basis
(Governance and engagement-based strategies can, of course, be incorporated into all of the above investment styles)
Investment vehicles
The best known SRI funds are those which are offered to retail investors through open-ended mutual funds. However, SRI strategies can be deployed within almost all investment vehicles:
- Most institutions will run discretionary SRI portfolios for institutional investors
- There are a few closed-ended funds (investment trusts) – mainly in the environmental technology area
- ETFs – are available to track both screened indices and thematic ones
- Some SRI hedge funds are available – so far as we are aware, most of these use long-short equity strategies and avoid high-levels of leverage
- There are a number of SRI funds of funds and even an SRI hedge fund of funds
