Our investment philosophy
There are currently over 3700 funds available representing £6.9 trillion assets.These all need to be researched for their ethical/sustainable investment focus.
Fortunately the universe of ethical funds has expanded and we have a much wider selection of funds from which we can build sustainable portfolios.The focus of this is to give you a potential return and for you to know the investment fits in with your wishes. You can thus have the potential returns whilst knowing your investments coincide with your values.
Previously ethical investing could mean lower returns, less stable companies, and extreme ideas.Fortunately the world is changing and we want to be a catalyst to further that change.
There are companies that accept their social responsibility and others working towards it. Finding the fund houses and fund managers that are willing and able to invest in these companies on your behalf is our responsibility.It is also our responsibility or goal to encourage these and other fund houses to adopt a more ethical strategy. Once the fund has been established as suitable it then to be considered based on fund size, availability, ratings, charges and longevity. The funds are then reviewed by asset class and geographical exposure to fit a pre-determined asset allocation.The asset allocation is determined by risk to enable us to build portfolios to meet individual attitudes to risk.
All research, investment criteria and asset allocation will be undertaken by Purposeful.Money Ltd. This information will be shared with PFM Associates Ltd and their investment committee as a third party check.PFM will then use their discretionary powers to re balance and switch the portfolios.
Our portfolio process is made up of 6 stages, these are:
Establish mission and values
In this first stage we establish a clear investment strategy
To ensure that all funds are fully divested
All members of the investment committee have a clear understanding of the aims and objectives
Establish a clear asset allocation strategy
To invest in funds who support activities that make a positive impact on society
To avoid funds that invest in companies with activities that harm society or the environment
Use our influence to encourage funds to improve their management of ethical issues through engagement
Initial screening of ethical funds
We will research for all funds that are considered 'ethical'. There are around 3500 funds in the entire investment universe and we conduct a few assessments to filter out all the funds that are considered ‘ethical’, this needs to be further inspected to screen out funds that have labelled themselves as socially responsible but have no real underlying criteria to support this. Ongoing monitoring of the 'ethical' universe will continue to ensure that all socially responsible funds are considered.
The remainder of those ethical funds that have undergone the initial screening are then assigned into separate ‘baskets’ according to their asset classes, the asset class categories are as follows: Fixed Interest, UK Equities, International Equities, Thematic, Other.
Cautious Portfolio 40-50
Cautious Medium 50-60
Medium Adventurous 70-85
Asset allocation is the process of dividing an investment between different asset classes in order to spread risk through diversification. To benefit from diversification you need to invest in assets that behave differently from one another. Some assets have little or no relation with one another (known as low correlation) whereas others are inversely connected meaning that they move in opposite ways to one another (called negative correlation).
There is an agreed strategy to utilise thematic funds, where possible as they focus on investing in companies that have a positive influence on social issues rather than relying on negative screening alone.
Further screening for fossil fuels
Each portfolio is then analysed to ensure that there is no investments held in oil or gas exploration or extraction companies. Rather than rely on the Fund Managers to confirm or otherwise whether this is the case, we undertake a thorough scrutiny of all the stock that is held in the selected funds to ensure that they meet our criteria. Reviews of all holdings in the funds will be conducted to determine whether such companies exist in the portfolio. If an exploration or extraction company is found the fund will be excluded from consideration until evidence is provided to prove the contrary. Communication will be maintained with fund houses to notify them that we will consider utilising the fund in the future when they are exploration and extraction free.
All the remaining funds in the asset classes have been screened twice to ensure that they meet our 'ethical' standards. The funds now undertake a further selection process based on the following criteria:
Performance over 1, 3 and 5 years
Fund manager history and performance
Additional considerations: No more than 1 fund from each fund house is allowed in each market sector within any portfolio. Funds that have more than one year track record will only be considered.
Ongoing portfolio management
In order to maintain the portfolios the following regular assessments will be undertaken.
Every quarter the portfolios will be audited to sure that they remain fully divested. Any fund that is no longer divested will be removed from the portfolio.
Ongoing research will be undertaken to assess new ‘ethical’ funds for consideration.
Quarterly assessment of the asset allocation to ensure that the strategy meets with the stated aims, objectives and risk profile.