UK wealth managers turn to fixed income and passives for ESG strategies

investmentweek.co.uk:

'Almost 44% of UK wealth managers and private banks expect demand for index funds and ETFs to increase over the next 12 to 24 months.'

According to Cerulli Associates' latest Cerulli Edge — European Edition report, responsible investment allocation has been evolving and expanding towards fixed income and passive strategies.

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It found that demand for passive ESG vehicles has nearly tripled versus the request for active ESG strategies, with 29% of wealth managers and private banks reporting high order for index ESG funds, compared with 10% for active ESG funds.

Cerulli Associates noted that while the vast majority of ESG funds in the UK were comprised of equities, there has been an increasing number of fixed income and multi-asset options coming to market.

In 2018 there were just 27 ESG ETFs listed on he London Stock Exchange, compared with 194 as of March 2023, and in 2022 alone, LSE-listed ESG ETFs experienced net inflows of £23.2bn.

«Almost 44% of UK wealth managers and private banks expect demand for index funds and ETFs to increase over the next 12 to 24 months,» said Fabrizio Zumbo, director of European asset and wealth management research at Cerulli Associates.

Additionally, 80% of asset managers in the UK said they expect modest or fast growth in the flux assets going to ETFs over the same time period, while 60% said the same for index mutual funds.

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At the same time, there was still a gap in the ESG passive space, with growing demand for fixed income options. In fact, only 12% of the 90 ESG ETFs that listed on the LSE between 2021 and 2022 were bond ETFs, despite reporting net