Katy Owen reports on our latest portfolio offering for our clients.
Back in the spring, Darren and I were travelling to see a client in the beautiful Brecon Beacons. I commented that we really need to look after our planet to preserve our countryside and living conditions. Darren realised that eco-friendly investing was something close to my heart, so he challenged me to create an eco-friendly portfolio which he aptly named ‘EKO’ after my initials.
I have spent considerable time over the past couple of years learning about the Markowitz approach to diverse investing and portfolio construction. However, it was one thing studying it and something completely different building it from scratch.
We decided that I should target the level three risk profile from 1-5 on our well established Thomas and Thomas risk scale. This gave me the portfolios’ tolerance levels in terms of future potential volatility, I then selected the asset allocation to match this in terms of the sort of exposure I felt our clients would want firstly from an asset class perspective.
Then I got to work on seeking out fund managers who ‘screen’ positively for stocks that support environmental issues. The key screening mandate I gave myself was to try and screen out funds that invested in nuclear power, intensive farming and non-sustainable timber. I then went looking for fund managers who screen in stocks that positively support climate change and environmental initiatives.
This mandate took my initial broad search down from over 2,000 funds to just 10 funds which is really quite shocking. The issue with any type of ethical investing is that the market demand for these funds is much less than mainstream investments. This is not because people usually want to invest ‘unethically’, the issue is that mainstream investments allow us to diversify risk far more effectively. Ethical portfolios will always be ‘narrower’ in their investment approach.
Therefore, I wanted to build something that could perhaps act as a ‘satellite’ portfolio for some of our clients, where they could invest a smaller amount of their money. They would need to accept that its lack of diversification will make it potentially very volatile. In return they feel they have made a positive difference to our environment by actively supporting eco-friendly funds.
This week there is a world conference on the environment in Paris where the heads of state will try and agree ways to bring down the amount of damage that pollution is causing to the world. Therefore, we felt it timely to launch our new Thomas and Thomas EKO portfolio.
The portfolio itself has been tested and monitored by Darren and myself for the past six months and it has shown pleasing results during these very volatile markets. Over the past quarter it has grown by around +2.10% according to an independent report powered by Financial Express.
The same report also shows very pleasing growth of around +7.18% over the year, +13.06% over two years and around +38.59% over the past three years. Whilst the past is not a guide to the future, these sort of returns are made all the sweeter by knowing that the funds used are ‘eco-friendly’.
Our new EKO portfolio is all about looking after the planet first and protecting it natural resources. It does also currently manage to avoid cosmetic animal testing but this is not its primary objective. I thought President Obama’s speech yesterday was very apt, when he challenged the world to put its short term interests secondary to the water that our children will drink and the air that they will breathe.
We hope that clients will want to talk more with us about ethical and environmental investing after checking that it is the right solution for their financial plan.
As with all of our articles, it is important that you see us to take financial advice before investing. This article is not intended as a recommendation or direct promotion. The EKO portfolio will fall as well as rise and all of the usual investment risk warnings apply.