Today, we are exploring socially responsible investing (SRI) whose nature is attracting an increasing number of investors everyday. Infact, assets under management in this type of investment fund grew by 146% between 2011 ($ 4.45B) and 2017 ($ 10.9B) while net cash inflows increased from $ 655M in 2016 to $ 1.22 billion in 2017*. This trend is based on the growing influence of millennials on the investment community. This generation is much more attentive to ESG factors (Environmental, Social, Governance) and, hence, more and more fund managers are integrating those factors into their business risk analysis.
The choice of participants in the funds is no longer only done using negative filters, such as, “excluding companies in the arms industry”. The use of positive filters such as “low carbon footprint” or “women’s representativeness” is becoming more common. According to the article published in the “Finance et Investissement” newspaper in November 2018, we can expect that SRI will focus on tackling the 17 objectives set by the UN in 2015, where education, gender equality, and the elimination of poverty and hunger are the main goals.
NEI Investments is the leader in the field of responsible investing in Canada. The 30-year-old company bases its strategy on issues such as the global energy transformation, sustainable food production, and board diversity. As of October 31, 2018, the performance of the Canadian Small Cap Equity Fund- ER NEI Series A- over 3 years is 6.84%, 5.37% over 5 years, and 10.22% since inception. These results indicate that responsible investment funds can be just as successful as other types of ETFs.
On our platform, we can find the iShares Jantzi Social Index (“XEN”) Exchange Traded Fund (ETF), which has been running for more than ten years. It aims for long-term capital growth by replicating the return of the Jantzi Social Index, net of expenses. The Jantzi Social Index is a weighted market capitalization index consisting of 50 Canadian companies that have responded to ESG criteria. XEN’s SP Score, calculated as a weighted average of the SP Scores of the securities held, is 59.74. As of October 31, 2018, the 10-year compounded annual return is 8.37% compared to 7.36% for the S&P/TSX 60, according to data from Sustainalytics. After fees, the ETF’s return is 7.77%.
During this year, eight SRI ETFs were launched, including a range of climate change ETFs recently launched by Desjardins Global Asset Management. These new ETFs aim to significantly reduce the carbon intensity of the portfolio or avoid investing in the fossil fuel sector all together.
In conclusion, we can emphasize that Responsible Investment is becoming an increasingly common approach. These investment funds, intended for a clientele with more diversified objectives than usual, provide a new range of products.
* Source: Finance and Investments November 2018
Blog post written by Loic Chatelanat (intern), under supervision of Kimberly Yip Woon Sun (ETF Analyst).