“Beauty is in the eye of the beholder.”
The same can be said for Sustainable and Responsible Investing. Your portfolio can be a reflection of your values. In this article we will outline some ways in which an investor can customize an investment plan to reflect those views while retaining the potential for competitive returns.
Identify the Issues: Sustainable and Responsible investors typically scrutinize three broad groups of issues: Environmental, Social and Governance (ESG). The degree to which you focus on a particular issue is a highly personal decision. Websites such as CSRhub help investors see how each company has performed based on an objective assessment of their performance in each area.
Focused on environmental issues? You may wish to know if a company is one of the 100 Low Carbon Pioneers. Social issues often enter into investor consideration. A good start might be the Top 50 Socially Responsible Companies, or the CRO Top 100 Corporate Citizens.
These days, investors have much more information at their disposal to assist them in portfolio customization. Many new benchmark indexes, such as the Dow Jones Sustainability Index, have been constructed to guide investors across all three of the core ESG categories.
Manage Your Risk: Building a portfolio to meet sustainability objectives is a noble pursuit. To be considered a success, however, it must be properly constructed to have a risk profile that is consistent with that investor’s risk tolerance. You’ve heard this before: Diversification is step one in managing risk. This means holding multiple securities across many industries and asset classes. Enamored with clean technology? Great! Just don’t think that ten securities across this segment constitutes a diversified portfolio. Try finding best-in-class companies in several industries. Of course, each investor has unique circumstances, and all investments involve some degree of risk.
Implement: Investors are empowered by these new research investments tools, but managing this process can be time consuming. For the investor who wishes to “outsource” some element of this research, there are scores of investment vehicles that boast competitive track records. Passive options include an array of Exchange Traded Fund’s (ETFs) that provide cost-effective SRI portfolios. Dozens of mutual funds address this market with unique profiles: Faith-based values, environmentally-focused, broadly-defined sustainability, etc. Websites such as Social Funds can help investors decide which funds may be right for them.
Not a fan of funds, but still need help? Investors with as little as $100,000 can often access the expertise of boutique investment managers through the separate account platforms of financial advisors. These firms may be SRI specialists, but often they are generalist firms who run “constrained” versions of other successful investment portfolios.
Written by Scott Sadler, Boardwalk Capital Management
For more information, discuss this topic with your advisor or visit Boardwalk Capital Management.
Tags: Boardwalk Capital Management, Dow Jones Sustainability Index, ESG, Exchange Traded Fund's, portfolio, risk profile, Scott Sadler, separate account platforms, Sustainable and Responsible Investing