Our socially responsible investment (SRI) portfolios are one year old. And as we celebrate hitting this symbolic milestone, we’ve got our hands on some compelling data from the first 12 months. Spoiler – we’ve got some myths to bust.
From demographics interested in ethical investing to levels of return, we’ve seen our SRI pots have a habit of subverting many of the presuppositions people tend to have about this emergent investment style. So, we’re going to call them out, one by one.
Myth #1: To invest in line with your values you need to sacrifice returns
According to research from The Wisdom Council¹, a major barrier for many investors and would-be investors in choosing an ethical investment is the perception that they will need to sacrifice returns.
When we discussed this at launch, we provided a historical study of how we expected our sustainable portfolios to perform. This analysis showed that, while we expected short-term deviations in return, the data showed no meaningful (statistically reliable) differences in the performance of strategies incorporating an SRI focus and those that don’t over the long term. And now our finalised 12-month data reveals something even more encouraging.
-Asset Risk Consultants data, 1st October 2018 – 30th September 20192 ²
-Nutmeg SRI customer data, 1st October 2018 – 30th September 2019
We compared the performance of our SRI portfolios to that of the average wealth manager’s non-SRI portfolios across available risk levels. Using data from Asset Risk Consultants (ARC), our sustainable pots were shown to outperform the industry benchmark at each corresponding level of risk.
It is important to note that we recommend people invest for at least three years, and ideally longer, to benefit from the potential of higher returns and, while a 12-month period can give an indication of performance, it is not a guarantee of future performance.
But with that being said, the results are encouraging to anyone interested in investing in a socially conscious way, but worried about compromising their returns.
Myth #2: Ethical investing is only for millennials and women
Young people are on the march. Millennials and Gen Xers have been taking to the streets en masse to protest against the perceived government inaction on issues such as climate change. But this movement isn’t just confined to the youth. More seasoned investors are embracing the idea that ethical principles can and should form the basis of a forward-thinking investment strategy. And as these principles become more widely adopted, we’ve found that there’s no breakaway demographic responsible for leading the SRI charge. And that includes gender.
As the data below shows, the age and gender splits between Nutmeg’s SRI and non-SRI pots differ by an insignificant amount.
While there is still work to do in achieving gender parity and getting people started on their investment journey from a younger age, this information shows that – compared to our non-SRI pots – there exists no clear demographic niche into which you can fit our SRI portfolios. Investments based upon environmental, social, and governmental (ESG) criteria are becoming increasingly popular among a diverse range of Nutmeg customers.
Myth #3: SRI Portfolios are just a fad
Ethical investing is here to stay.
We’ve seen industry-wide evidence of how companies with higher ESG scores outperform those who score poorly. Investment research firm MSCI found that companies in the bottom fifth (by ESG score) of the MSCI World Index experienced large drawdowns (above 95%), three times higher than those in the top fifth throughout the study period from January 2007 to May 2017³.
And, according to our own research, Nutmeg customers are increasingly seeing ESG focused portfolios as a good place to put their money. In fact, our data shows that as of 1st October 2019, 20% of new investments in 2019 have been into our SRI portfolios.
A year in, and it is clear that our sustainable portfolios are not only a great way to make socially conscious investment decisions, but an opportunity to capitalise on an increasingly profitable and forward-thinking industry.
If you want to find out more about Nutmeg’s sustainable portfolios, visit the SRI section on our website here: https://www.nutmeg.com/socially-responsible-investing
1. Source: The Wisdom Council, Responsible Investment Research, 2017
2. This data is based on monthly results published by Asset Risk Consultants (ARC). ARC compute the average returns from discretionary investment managers based on risk profile, after fees. These include results from firms such as Barclays Wealth & Investment Management, Coutts & Co, JP Morgan Private Bank, UBS, Rathbones, Rothschild Wealth Management, and others. For example, the Sterling Balanced Asset Private Client Index (PCI) is a group of portfolios managed with equity risk aimed at between 40%-60% of volatility of global stock markets. For Nutmeg risk levels 3-4 the Sterling Cautious index (0-40% Equity Risk) is used, for 5-6 the Sterling Balanced Asset index (40%-60% Equity Risk), for 7-8 the Sterling Steady Growth index (60%-80% Equity Risk), and for 9-10 the Sterling Equity Risk Index (80%-120% Equity Risk). ARC do not provide data for portfolios equivalent to Nutmeg risk levels 1–2
As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance.