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What the ESG boom means for fund fees

Demand for funds has started to come off the boil. Recent data shows UK investors put a total of £1.7bn into open-ended funds on a net basis in October – the lowest monthly amount in just over a year. The Investment Association (IA) puts it down to a “wait and see” attitude as people grapple with uncertainties on the inflation and interest rate fronts.

But momentum persists elsewhere. Environmental, social, and governance (ESG) investing is still pulling in the punters, with nearly £1.5bn (net) going into so-called responsible investments for the month. This 'responsible' category, used in the IA's data, has suffered just one monthly outflow so far in 2021. Overall, these funds have taken on nearly £13.2bn in net flows over the first 10 months of this year, accounting for more than a third of all fund sales.

It’s quite the sales bonanza, and the weight of money going into such products has become increasingly visible in the results of asset managers with strong ESG franchises, such as Liontrust and Impax Asset Management. For some, this trend might solidify all manner of concerns, including the worry that ESG investing is quickly morphing into a bubble. But I wonder if a silver lining could soon emerge for fund watchers?

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