R spells responsible and return

As interest in responsible investment grows, new products to meet this demand are on the rise. For instance, the passive investment provider Coreshares offers its green exchange traded fund, which tracks the Nedbank green index.

Responsible investment funds are also increasingly holding their own in terms of performance.

The Old Mutual Investment Group developed its own South African environmental, social and governance (ESG) tracking fund, the Old Mutual responsible investment equity index fund, the first local tracking fund aimed at institutional investors.

It uses a different rating methodology from that of the JSE. According to Kim Johnson, its index portfolio manager, the responsible investment equity index fund dispelled questions about performance, showing cumulative returns of 71.13% between October 2012 and December 2016, compared with returns on the JSE all share index/ shareholder weighted index of 62.85%.

Old Mutual also has two global ESG tracking funds, which follow the MSCI world ESG index and the MSCI emerging markets ESG index.

Given a growing interest in a responsible investment platform for retail investors, Johnson said Old Mutual is considering the creation of a rand-denominated unit trust on the back of its Old Mutual MSCI world ESG index fund.

According to Angelique Kalam, the manager of sustainable investment practices at Futuregrowth Asset Management, the amendment to regulation 28 granted retirement funds the flexibility to increase their total aggregate exposure of unlisted assets, including equity and debt, which may not exceed 35% of the fund value.

This has helped to drive flows to socially responsible investment (SRI) funds locally, she said.

The growth in some of the company’s flagship funds is indicative of the extent of these inflows, said Kalam.

The Futuregrowth infrastructure and development bond saw a cumulative growth in assets under management over the 10-year period ending December 2016 of 205%, with the fund value reaching R12.1-billion, compared with 10 years ago when it was R3.9-billion.

There is a misconception that returns are forfeited for the sake of social or developmental impact, said Kalam.

But the infrastructure and development bond fund, Futuregrowth’s flagship SRI debt fund, has a 21-year track record and has achieved a return of 9.6%, compared with the all bond composite index (ALBI) benchmark of 7.65% for the one-year period, and 9.4% compared with the ALBI of 6.83% for the three-year period ending September 30 2016. —