If you are a follower of the ruminations of my cat, Ruby, you will have seen that I have recently ‘given up’ on my electric car. This was upsetting because I am a firm believer that we should be using alternative energy. However, I only want to drive a small car. Small cars have small batteries, and I frequently need to drive long distances to see clients, with little or no time to pause to charge up. Necessity resulted in my having to make a change which was not entirely to my liking.
This led me to compare the situation with many of my clients who have made a positive decision to invest their capital in environmental or ethical funds. Unfortunately, the managers of such funds must select companies which are frequently in their early years of expansion and innovation. Such companies may have a high level of debt, and may not thrive in periods of high and increasing interest rates and inflation. We have recently seen poor performance from these funds, and this is likely to continue as interest rates and inflation rise. The question posed by the investor is whether they should abandon the investment approach which matches their beliefs.
We have been having conversations with a number of clients on this very topic, and our advice is age-related. If you are in retirement and may need growth and income from your investments to fund later life needs, then you should move a percentage away from the ethical and environmental sector. This results in a ‘foot in each camp’, which I agree is not ideal, but it suits your needs.
If you are younger, keep investing in this sector. You are sponsoring the companies of the future and, in due course, you can enjoy the investment returns and see the improvements in society which have resulted from your tenacity.
There is a ‘middle way’ for the older client. If you have children or younger relatives who will benefit from your assets in due course, then you may wish to consider ‘ring-fencing’ a small portion of your portfolio for ‘the young’. In the portfolios we run, we can then continue to recommend and manage a portion in ethical and environmental funds. Even if this is only a small amount of capital, it will inevitably make an impact in due course.
The selection of ethical and environmental funds is a specialist area of investment, and we believe clients do need independent advice when investing in this manner.