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Socially Responsible Investing: Your questions answered

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As you probably know by now, Moneyfarm has launched its own Socially Responsible Investment (SRI) portfolios. Both new and old customers are now able to grow their wealth in a way that centres environmental, social and governance (ESG) criteria right through the investment process. 

Of course, our investors have asked us a number of important questions about how the portfolios are built, how the ESG criteria are selected, and how they’re expected to perform, among other things. If you haven’t had the chance to chat with one of our investment consultants about ESG, this article may be of help to you. 

Here is a selection of some of the most frequently asked questions we’ve been asked about Socially Responsible Investing. 

In what way are the investments ethical?

This is an important one. In a nutshell, we’ve identified three core criteria that we’ve based our ETF selection process on: 

  • Firstly, a strong emphasis on social factors is key. We are only selecting ETFs that exclude companies with questionable business practices, or those that are part of sectors with negative associations, like arms production or gambling.
  • Secondly, the funds we select will all adopt a best-in-class approach: the ETFs we choose to include only the best-performing companies from an ESG point of view. This means they score highly on environmental, social and governance metrics. 
  • Thirdly, we prefer funds that provide additional safeguards from a sustainability point of view, such as the exclusion of highly polluting industries like fossil fuels. We also value investor engagement in business processes. 

This means that, by selecting the right ETFs, we hope to create portfolios that are less carbon-intensive, have a strong social record and play an active role in decision making at the businesses they’re made up of. 

How exactly do I open a Socially Responsible portfolio?

It’s quick and easy to set up a Socially Responsible Investing portfolio. If you’re creating a new portfolio as an existing investor or a new customer, simply head to the dashboard and click ‘Add portfolio’. Then, you’ll be asked to choose your product, after which you’ll have the choice between an ESG portfolio and our classic offering. 

To open your own Socially Responsible Investing portfolio in just a few minutes, click here.

If you have any problems at any stage of the process, feel free to get in touch with a member of our investment consultancy team, who’ll be happy to help. 

How would inflation affect both types of portfolios?

The impact of inflation would differ depending not only on which type of portfolio you have, but also on your risk level. For example, most fixed income assets (bonds, etc.) would be expected to fall, as the value of a fixed interest payment becomes smaller relative to inflation (though we do hold bonds that are inflation-linked in an attempt to mitigate this). 

The equity market can have a number of reactions. For example, if the stock in question relied heavily on borrowing to finance future growth, you would expect the impact to be negative as it would be assumed their borrowing costs would go up. However, if the company can adjust their pricing easily, you would expect it to perform well, as they are prepared to ride any inflation and pass the impact onto their customers.

Are the portfolios built by investment experts or by an algorithm?

Both our Socially Responsible Investing portfolios and our regular portfolios are constructed and managed by our Asset Allocation Team, which is headed by our Chief Investment Officer, Richard Flax. 

Our algorithm provides recommendations for the risk levels which are suitable for our investors. Specifically related to ESG, we have developed the Moneyfarm Engagement Layer, a set of criteria that creates a score, which we’ll use to differentiate between SRI funds when there is no discernible difference between the two. 

Ultimately, whether you’re investing in an ESG portfolio or a regular stocks and shares ISA, our Asset Allocation Team are the ones looking after it. We use technology to inform our decision-making, not to lead it. 

Is it possible to hold multiple portfolios with you?

Yes, you absolutely can. You can specify different time horizons for each portfolio, which will yield different recommendations for the risk level. Equally, you may want to open a Socially Responsible Investing ISA while also putting money into a regular SIPP. 

This is straightforward to set up – just get in touch with your investment consultant and they’ll be happy to talk you through your options regarding multiple portfolios and portfolios of different types. 

Will the Socially Responsible portfolios be managed any differently?

The short answer here is no, they will be managed in the same way as our regular portfolios. This means that they’ll be watched daily by our experts, with rebalances occurring (around) once a quarter, to ensure that our portfolios are always fit for purpose. 

The construction and maintenance of the portfolios will, of course, be handled separately to that of the regular portfolios given that they’ll be made up of different assets. The process, however, remains the same. 

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