Thursday, 4 June 2020

Industry Insights: Sustainable Investing – A positive for markets during Coronavirus

Industry Insights Series Q2 2020

Joseph Middleton, Adviser

For many years ethical and sustainable investing was considered niche and high risk by the industry. Thus, many investors discounted this kind of investing for fear of losing their hard-earned savings. However nowadays there is a much larger choice of ethical and sustainable investment options and the risk is much lower. Indeed, sustainable funds in general performed much better than their relevant benchmarks during the recent COVID19 related market correction. So what has changed?

In recent years, people have become more and more aware of global warming and some of the unethical practices happening around the world. Due to this change in mood and evidence that the world needs to adapt, companies are starting to realise that in order to remain relevant and profitable they must take notice. What many fund managers are noticing, even when their fund is not strictly marketed as sustainable or ethical, is that companies that take these issues seriously generally perform better in the long term.

This can be linked to what we saw during the recent drop in asset prices due to the coronavirus. One of the only bright spots in markets was the resilience of sustainable funds generally. This can in part be attributed to the nature of the crisis – sustainable funds would not have exposure to oil, airlines and other areas of the market that have been hard hit due to lockdowns around the world. However, it is also because many ethical and sustainable companies have proactive managements. Having a good management team and systems in place has always been something fund managers look for when investing, as it is a key indication of a well-run business. 

Of course, this does not mean that ethical and sustainable funds will always outperform, but this style of investing will continue to grow. At GDA we create bespoke portfolios designed for your personal circumstances and this includes if you are interested in sustainable and ethical investing.

More generally speaking it is clear that many companies and investors are taking more and more notice of wider issues and their impact on the world around us. This can only be positive news and the coronavirus crisis could be a further catalyst for change.

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