When we’re constructing the Claritas investment portfolios, our primary objective is to make sure that we provide our clients with the returns that are available from capital markets. We diversify across different markets, keep costs low, avoid active managers and maintain discipline through difficult times. We have a track record of being able to provide market rates of return and our clients are therefore doing better than the majority of investors (based on a huge weight of academic evidence that shows that most investors do not receive the market return). However, by diversifying widely we are invested in all areas of the market and inevitably this means investment in some industries that make some investors feel uncomfortable, such as arms or tobacco.
There are four ways to deal with this as I see it:
Live with it and accept that your investment portfolio is the engine behind your financial plan and the returns are the most important thing. It’s completely your choice. Most of our clients invest like this. n Adopt a ‘pragmatically ethical’ approach to your investments, i.e. invest in a socially responsible way where you can. This may involve reducing (but not eliminating) exposure to certain industries. Returns do not necessarily need to be compromised. We have a number of clients that invest in this way. Try to construct a portfolio that exactly matches your values and beliefs. This is massively difficult. You are constrained by the products that are available in the marketplace and, when you really delve into it, can you be certain that there is nothing in there that jars with you? Unlikely. Returns (or control of risk) are likely to be compromised. Invest, say, 90% of your portfolio in a ‘traditional’ or ‘pragmatically ethical’ portfolio and 10% in funds that are designed for maximum positive social impact, e.g. clean energy, social housing, healthcare, education, micro-finance, sustainable agriculture etc. Within the ‘social impact’ portfolio, returns will be unpredictable, but the main driver is to do some good with a portion of your capital, without actually gifting it away. The 90% (or whatever
percentage is agreed) takes care of your financial future so you can be fairly relaxed about the other 10%. At Claritas we’re starting to undertake significant research regarding social impact investing and have received positive feedback from a number of our clients. We’d love to hear what you think about this, so please do email me with your thoughts. firstname.lastname@example.org