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Capital Markets

Sustainable stocks: Fund managers turn to ‘ethical’ stocks for profit

Valuations of sustainable stocks are becoming less sustainable as alternatives become conventional.

Many companies that have traditionally been considered as exclusively ethical investment stocks are increasingly turning up in the conventional portfolios of fund managers.

Mainstream investors are being drawn to companies from such sectors as alternative energy and bio foods by the strong performance of these stocks, which has been driven by soaring conventional energy resource prices, growing consumer demand and soaring market capitalizations.

The wider interest has helped share prices in these companies but “ethical” investors, who often prefer the terms “socially responsible” or “sustainable” for their investment styles, complain that the attention is stretching valuations and squeezing their allocations to primary and secondary offerings.

“Government policy changes and increasing demand for ‘greener’ products ultimately make ‘ethical’ stocks more attractive,” says Sophie Horsfall, fund manager of the F&C Global Growth and Stewardship International funds. “Examples include companies working in the fields of alternative energy, low carbon technologies, energy efficiency, water management and urban regeneration.

Renewable energy takes off
How energy funds outperform
Source: Isda/BIS

“The alternative energy industry is still relatively young, and in many cases only just becoming profitable but many fund managers with wide mandates are starting to invest.

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