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Friends Provident Stewardship funds pass £3 billion mark 01.03.07

Friends Provident, the first provider of ethical investment fund in the the United Kingdom and now the largest ethical funds provider, has announced that at the end of 2006 it had £3 billion under ethical fund management.

Speaking to Natural Choices Julia Dreblow, socially responsible investment marketing manager at Friends Provident, said "This is really an achievement to be proud of. This is now a £3 billion fund range that at its outset cynics predicted would struggle to reach even £3 million.” Following on from the outstanding results from the CIS Sustainable Leaders Trust in the last twelve months (See CIS Sustainable Leaders Trust- Out Foxing the Market) both the Friends Provident Stewardship Life Fund and the Friends Provident Stewardship Pension Fund have achieved top quartile performance since launch in their respective sectors (UK All Companies), showing once again that ethical doesn’t mean unprofitable.

There have been two key criticisms of ethical funds, firstly that by limiting the universe of equities the fund can buy to only those from “ethical” companies means that the funds are unable to spread risk across a wide portfolio, similarly they are unable to profit from ceratin sectors meaning that they will always under perform the market over the long term. If was for this reason that the first Stewardship fund took ten years of lobbying after they were initially refused a license in 1973 only finally being approved by the Board of Trade in 1984. “Screening can lead to short term underperformance, argues Julia Dreblow, quoting the example of oil company equities, “however the facts speak for themselves, the Stewardship Pension Fund is in the top quartile of funds over 6 months, 12 months, 3 years, 5 years and 10 years”. The idea that the Socially Responsible Investment community are ‘NGOs in suits’ is just not sustainable says Dreblow, share holder value and delivering consistent and sustainable are as central to ethical fund managers as they are to all fund managers.

The second criticism centres around fees. All fund management incurs fees of one description or another, one key cost is research and analysis, ethical funds because they go beyond the straight financials and look in depth as the environmental and social policies and practises of a company tend therefore to have heavier research needs than “traditional” funds. In the case of the Stewardship range of funds and the wider Friends provident offering this isn’t the case, says Dreblow, F & C charge a flat fee for all Friends Provident funds they manage, it is the same fee for the Stewardship range as for the unscreened funds. Some of the smaller funds may have higher charges as they do not have the economy of scale of the Stewardship range, however this is the case amongst many smaller funds regardless of nature.

One undisputed outcome of having greater research available on companies is the fact that ethical fund managers are much more deeply engaged with the companies they invest in. Indeed Julia Dreblow points out that the key engine to growth in the Stewardship funds have come from the small and mid cap sector, managed by Hilary Aldridge. A number of key Mid Cap companies have been discovered in the research as key supplier to the large companies. The fact that he fund managers are closer to the companies they invest in, and have a fuller picture of the risks and opportunities many help explain both the success of the fund and their consistency. Ted Scott, fund manager of the Friends Provident Stewardship Life and Pension Funds, said, "Over the long term these portfolios have beaten the median funds in their respective sectors, despite their more restrictive universes. They have also managed to do so with lower levels of volatility than the typical fund." Ethical finance has seen a rapid growth in the last 5 years from an estimated x in 2000 to £11,522 million in 2006, investment funds make up a large share of that total, approximately £7500 million. Friends Provident are the market leaders in this sector with just over 40% of the entire market. The fast growth in the sector however means that the entire finance industry is now taking the sector very seriously, there is now 90+ such funds available to the investor and more in pipe line. Friend Provident remain the longest and largest player in the market with over 40% market share. Recent research from GfK NOP (Oct 2006) shows that more than 1 in 5 (22%) now consider ethical investments when considering investing and that they now see ethical as a mainstream option.

Peter Shield

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Friends Provident

Friends provident SRI Site

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