Financial guru Peter Sharkey reports on why we’re choosing to invest ethically.
Once upon a time, the vast majority of investors deliberately avoided investing ‘ethically’. This widespread display of uneasy reluctance didn’t necessarily reflect an innate opposition to the concept of investing in companies attempting to make a positive contribution to society per se. Instead, it highlighted the fact that: a) the companies tended to be quite small, which meant few investors had heard of them, and b) the returns available from ethical investing were, frankly, poor.
Last week, I received up-to-date details of returns generated by the Liontrust Sustainable Future UK Growth Fund (LSF). The fund’s name might be a bit of a mouthful, but its value has risen by an impressive 11pc in the last three months alone; total annual returns over the past decade are an equally eye-catching 13.55pc.
As the 2018-19 ISA deadline day approaches (it’s Friday, April 5), investors searching for socially responsible investments may wish to measure these returns against those they’re currently receiving, either from an existing stocks and shares ISA or its sister, the cash version, the best of which offers returns of less than 2pc. Such disparity looks set to continue.
Late last year, a report by Triodos Bank into ‘Impact Investing’, a close cousin of the ethical variety, suggested it was an area of investment likely to experience significant growth over the coming decade. The bank’s analysis predicted that the market is set to be worth £48bn by 2027; three years ago, it was worth less than a third of that figure.
So what is driving this trend?
The research highlighted a greater appetite for more ethical investment opportunities, both among existing investors and what it calls a “new generation of socially conscious millennial investors.”
Around one fifth of investors are planning to invest in a socially responsible investment (SRI) fund in the coming years, say Triodos, a figure which rises to almost 50pc amongst younger folks, aged 18-34.
The bank’s research found that more than half of investors would prefer to support companies engaged in creating a more positive society and a sustainable environment. Amazingly, however, a staggering 73pc had never been offered ethical investment opportunities, while 61pc didn’t know where to go for more information on SRI.
It’s evident too that investors increasingly crave greater knowledge of what they’re investing in and how their money is being used. Female investors in particular increasingly require more transparency before investing, with three-quarters of women surveyed citing this as a key factor in determining where they put their hard-earned.
The LSF managers invest in companies which they believe will “…survive and thrive [and] are those which improve people’s quality of life.”
This could be through medical, technological or educational advances, a more efficient use of scarce resources, or via companies that “…help to build a more stable, resilient and prosperous economy.”
But these are not the only criteria: companies in which LSF invest must exhibit three specific characteristics. They must be well-managed and produce or create products or services that are making a positive contribution to society; they should display strong growth prospects and implement a business model which enables them to grow profitably while generating competitive returns.
The LSF forms part of a ready-made, ISA-friendly ethical portfolio managed by TAM Asset Management. Lester Petch, TAM’s chief executive, notes that the fund’s longer-term investment process has proved extraordinarily successful over the past decade, which he ascribes to the fact that “Its three largest areas of investment are healthcare innovation, financial resilience and energy efficiency – sectors that have enjoyed equally impressive growth over the same period.”
But LSF has other strings to its considerable bow, investing in companies that generate electricity from renewable sources, education and affordable healthcare.
Not surprisingly, the fund has become an integral part of TAM’s ‘adventurous’ ethical portfolio which appears likely to attract younger investors wishing to invest in socially responsible funds.
Although it offers absolutely no guide to future returns, the LSF’s performance in recent years has been impressive enough to warrant further investigation, especially by people wishing to respond to the ‘use it or lose it’ mantra loudly chanted by advisers and fund managers urging people to take advantage of their ISA allowance before it’s too late.
TAM Asset Management Ltd offer investors the opportunity to invest in a variety of ethical ISA portfolios before the end of the 2018-19 tax year – and beyond.
For further details, please visit the MoneyMapp website.
THE WEEK IN NUMBERS
•10.5pc It looks as though the public will be this year’s biggest April Fools thanks to an unprecedented series of price rises scheduled for April 1. Phone network EE is raising its prices by 2.7pc, while Sky broadband customers will see a 5.1pc hike to their bill. British Gas customers, meanwhile, must take a 10.5pc price increase on the chin. The official rate of inflation is 1.8pc.
•1752 Why does the UK tax year begin on April 6? It’s complicated, but in 1752, the calendar was effectively cut by 11 days. To avoid a significant loss of revenue, the Treasury extended the (then) tax year dates by 11 days, to April 5. It was tweaked again in 1800 to start on April 6. Clear now?
According to online property portal Zoopla, the town with the worst rental yield on a buy-to-let investment is St Albans where returns average 3.65pc. An average St Albans two-bedder will set you back £397,424, which explains why yields are so modest.
For more financial advice, check out Peter Sharkey’s regular column, The Week In Numbers.