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ETFs, SMAs Explode In SRI Market

Exchange-traded funds and separate accounts are driving the growth of socially responsible investing.

While mutual funds still dominate the SRI space with more than 85% of the market, ETFs and SMAs will outpace them in growth, according to a new report. SRI investing in separate accounts more than doubled in the past two years and ETFs appeared for the first time in a report just published by the Social Investor Forum.

The report shows that SMAs held $39.5 billion in SRI assets in 2007, up from $17.3 billion in 2005. ETFs also made their appearance on the SRI scene.

Joshua Humphries, a lecturer at Harvard University who was the lead author and research director of the report, said that as money managers look for new ways to offer SRI investing, they have been turning increasingly to ETFs and SMAs. ETFs, he said, fit in well with the SRI screening process. "The index-tracking structure of an ETF is certainly conducive to such an approach given the proliferation of socially and environmentally screened indices," said Humphries. He said that SRI is also helping to fuel ETF growth since most of the ETFs tracked in the report correspond to issues which increasingly concern investors, such as climate change, clean energy, clean water and environmental services.

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