Asset Management

FT.com: SRI "Safe Haven in Times of Turmoil"

Ruth Sullivan, Financial Times, 24 September 2007

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Socially responsible investment is often interpreted in a number of ways but what view do investors hold on strategies taking account of environmental, social and governance issues in times of market volatility and credit turmoil?

"We haven't seen any significant outflows in our [SRI] funds in the last few months," says George Latham, head of SRI funds at Henderson Global Investors, which manages four retail and two institutional SRI funds. "Just as we see ourselves as long-term investors, so do our investors."

The European Social Investment Forum says interest in socially responsible investing has been growing stronger since the market fallout, in part because it is seen as an improved means of risk management. "In turbulent markets it is a way to have a cushion of sustainability and to move away from the black box mentality to safe harbours," says Matt Christensen, Eurosif director.

At Henderson, which has more than £1.1 billion ($2.2 billion) in retail and institutional SRI funds, the exposure of its global funds, focusing on a thematic approach, has been relatively low in relation to the financial sector. "They have been insulated from some of the current market turmoil. We have seen some volatility in fund performance but we have broadly kept pace in global funds in the last few months against peers and benchmarks," says Mr Latham.

He attributes the insulation to Henderson's rounded thematic approach, which it calls "industries of the future" and involves investing in companies that are benefiting from a shift in sustainable development. Some of the areas it invests in are cleaner energy, sustainable transport, environmental services, health and education.

"We think there's a real gain to be made by investing in sectors of the economy benefiting from a shift in sustainable development," he says. Although Henderson has been involved in SRI since the late 1970s, it has formalised its approach in the last four years. It defines SRI as sustainable and responsible investing, rather than socially responsible investment, and has developed a strong track record in innovation in SRI research and its application to fund management."

In the UK, Henderson's SRI retail funds, which do not work purely on a thematic approach, are more exposed to the financial sector. "In the UK we've been a bit more affected in the short term and have seen some impact from volatility in the market and from the financial sector," he says.

"At the moment we think this is more an issue of liquidity between banks. It is necessary to look at the long-term view of who will be the winners and losers," he adds. In terms of buying opportunities in companies that are undervalued, it is about "picking winners on the right valuations".

The fund manager says it has no exposure to Northern Rock specifically and regards its stock picking in some sectors as relatively good. "We think our investments are in relatively strong institutions," says Mr Latham.

Stock picking is based on a bottom-up approach and also on a long-term view in a market that has "become too myopic in the last few years". His average holding period is less than six years but he describes himself as ruthless if he sees a change in the environment. However, he is prepared to be patient on short-term issues. "We are still looking to invest in companies on a long-term basis."

The test of investing is in performance and at Henderson - where its SRI funds are compared to the global market as well as to its peer funds - its funds returned 14 per cent more than the MSCI benchmark between October 2004 and August 2007.

The socially responsible investment market has grown considerably in the past few years and, now valued at €1,000 billion ($1,400 billion) in Europe, shows signs of moving closer to the financial and corporate mainstream with increased mandates from institutional players and involvement of more traditional financial services providers such as brokers, says Eurosif. One of the biggest factors driving the shift is public awareness of climate change. The organisation estimates that SRI accounts for up to 15 per cent of total European funds under management.

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