No surrender: ethical investors keep the faith

Socially responsible funds defy share gloom.

With strife on the stock markets, many equity investors are selling out and retreating to cash until the situation im- proves. But new research reveals that those interested in socially responsible investment (SRI) are standing firm and weathering the storm.

What's more, when markets are tough and investors question traditional forms of investment, many turn to socially responsible strategies, according to the research from consulting firm Cerulli Associates. SRI investors are also less likely to shift investments from one fund to another.

These findings are as true of the UK as the US. Morley Fund Management, which runs seven SRI funds, says that while investors elsewhere have been cashing in their shares, socially responsible investors have stayed put.

"I look at the daily deal lists of sales and repurchases, and have seen very few, almost zero, repurchases on the SRI funds we run," says Noel Smyth, SRI product specialist at Morley. "This is something we have been conscious of for the past two or three years and hasn't been the case for the rest of the market."

Russ Brady at Co-operative Insurance, which operates an SRI policy across its £20bn investment portfolio, puts this down to the profile of the socially responsible investor.

"People have a conviction to stay with these funds, so during periods that are difficult they don't tend to throw in the towel or chop and change," he says. "We don't see the whole scenario of 'flavour of the month' – people moving from one asset class to another as they did with tech- nology stocks, for example. They seem, by their very nature, to be prepared to ride out the volatility. Because they are investing with a conscience, they have a belief that their course is the right one."

And whether you invest ethically or not, this is clearly the right strategy. "Stocks and shares are for the medium to long term," adds Mr Brady. "There will be peaks and troughs along the way but these tend to be smoothed out in the longer term."

With SRI, patience is all part of the ethos. "People are buying more than just an investment product," explains Mr Smyth at Morley. "They are buying a piece of philosophy. We encourage investors to take a long-term view and SRI does too, encouraging companies to move towards more progressive policies and human rights, producing goods and services that improve way of life.

"These things take time and to see the benefits you need to be invested for the longer term."

Modern socially responsible investment has its roots in the anti-apartheid movement in the 1970s, when investors began to realise that their investments could be used to exert influence on multinational companies that dealt with the apartheid regime in South Africa. The concept is called "engagement", influencing companies from within as a shareholder.