“Say a client wants a long-term and steady investment. Data is now more nuanced so you can create portfolios looking at beta, helping you pick a range of passive funds aiming for consistent returns. At the same time you might balance this out with active funds that give you a bit more of a push. It all comes back to the suitability of the client.”
Experienced ESG investor Rob Stewart, head of responsible investment research at Newton Investment Management, says he is now finding diversification opportunities in newer sectors where such factors almost come as standard.
“There has been a massive push into the tech space, but one of the more interesting things is what is happening on the other side of this that might give us some diversification,” Mr Stewart points out.
“This has led us to things like efficient infrastructure and electric vehicles. Sectors like this have growth, ESG characteristics and provide something different to the dominant theme that has been driving markets this year, thereby providing some diversification.”
Crunch year for advisers and ESG
ESG is not a new concept but it is increasingly becoming hard to ignore for IFAs.
On top of greater client demand – 85 per cent of advisers have seen more ESG queries from clients this year, according to Federated Hermes – new MiFID II rules mean they will soon have to start taking ESG into consideration.
Unfortunately a disconnect exists between what is available, in terms of sustainable investments, and what can be easily accessed by the point of the adviser, which can get in the way of diversification.
At West Financial Management, managing director Helen West’s ESG ambitions have been frustrated by platform and compliance issues.
“We have been wanting to do this for some time but we are still not doing it as much as we’d like to be,” she says.
“This is mainly because, from a compliance point of view, research is proving difficult. It isn’t easy for us to say we’re using one company over another, so the way we use research is holding us back.”
At the same time, the other option facing Ms West – outsourcing to a discretionary fund manager experienced in ESG – is also proving difficult.
“Simplification is an issue as you can’t always access the funds that you want on a certain platform, and a lot of our clients are elderly so I don’t really want two or three accounts on the go,” she adds.
In her case, Ms West would like to invest in LGT Vestra’s ethical managed portfolio service but cannot access this via her Old Mutual Wealth platform. And while she could invest in the latter’s ESG proposition, this lacks the level of diversification she wants for clients.
