Wealthsimple's mission is to help you become a financial grown-up — make sophisticated investments, optimise for performance and risk and taxes and everything else — without your ever having to worry too much. But if you’re someone who wants your investments to make a positive impact on the world, up until now you’ve still had to do all the worrying yourself.
Today we’re changing that. Wealthsimple is launching a Socially Responsible Investing (SRI) portfolio in the United Kingdom. Now you can feel good about your investments morally — and financially.
What is it?
Our SRI portfolios invest in companies that make social responsibility — things like low carbon emissions, fair labour standards, preserving natural resources — a business priority. There are a set of principles that are used as benchmarks to determine if an investment is, for lack of a better phrase, good for the world. We're loathe to use another acronym, but the shorthand for the way investment companies screen for socially beneficial investments is called ESG — which stands for environmental, social and governance. If you're interested in learning more about these principles, you can read about them here.
If you're thinking: wow, investing in things that are improving the world sounds like a great thing to do with my money — well, you've got company. In the past 20 years, SRI investments have grown tenfold. There are now US$22 trillion of assets worldwide in socially responsible funds — and Europe accounts for over half (53%) of that.
Will it help my money grow?
Of course, this is an investment, not a charity. So you are probably wondering whether investing responsibly comes at the cost of lower returns. Academic journals have spilled much ink (and gone through much paper — not very SRI, academic journals!) trying to answer this question. And there seems to be a consensus: In the long run, SRI performance is on par with non-SRI performance.
Which begs the question: if SRI does as well as other investments, then isn't it possible to have the best of both worlds?
How does it work, exactly?
At Wealthsimple, we designed our SRI portfolios using ETFs that are meticulously selected through positive screening. Which is another way of saying we hired a group of experts to comb through funds with a fine-toothed comb. At the same time, we made sure our SRI offering has what all Wealthsimple portfolios do: excellent diversification (including UK stocks, international stocks and bonds); low fees (Wealthsimple's management fees range from 0.5% to 0.7% — far lower than what the average advisor charges); and optimal performance. And, of course, we have SRI portfolios designed for different levels of risk tolerance: Conservative, Balanced and Growth.
So what's in the portfolio?
Here are the types of funds we invest in when we build our SRI portfolios:
Global ESG Leaders: Six regional funds focused on companies selected based on a best-in-class approach.
Sustainable Bonds: Bonds of US companies selected based on a best-in-class ESG approach.
Clean Energy: Shares in firms that are advancing cleantech innovation.
Gilts: UK government bonds for risk control.
Are there any drawbacks?
There are two things to note. First is that the fee Wealthsimple charges doesn't change whether you invest in our SRI portfolio or our standard portfolios. But the fees charged by the funds themselves are slightly higher for SRI funds — 0.22% to 0.32% for SRI funds, compared with around 0.17% for funds in standard Wealthsimple portfolios. It's a slight difference, but it is a difference. Why is this the case? It takes more work — going through reams of data, etc. — by smart people to screen for the most socially responsible companies. And smart people usually don’t work for free.
The second is that the Wealthsimple SRI portfolio requires a minimum investment of £5,000. Because of the type of funds used in the portfolio, that's the smallest amount with which we can maintain our high standard for diversification.
If you don't have that much yet, don't fret. Just start an account with as little as £1.
One more reason SRI is a smart choice: investors in SRI funds are less susceptible to a common investing mistake: panic selling. No one's exactly sure why. It could be that knowing you’re making a positive contribution to the world reduces the angst you feel when the market declines, so you stay the course. And discipline is always the best long-term plan. Another reason SRI helps you do well by doing good.
Where do I find out more?
If we’ve piqued your interest, get in touch! New clients can sign-up at wealthsimple.com or via our iOS or Android app. If you already invest with Wealthsimple, head over to your settings page to switch to a SRI portfolio here.
All investing should be considered long-term. While stock markets have typically trended upwards over the long term, your investments can go up and down, and you may get back less than you invest.
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