When it comes to impact investing, the question most asked by investors is likely to be: “Do I have to sacrifice performance to invest with a conscience?” With the idea of socially responsible investing (SRI) gaining momentum and more investments dedicated to this theme sprouting up, it is likely that question will be asked by more and more investors in the years ahead.
At least one investment manager believes investors do not need to sacrifice performance to invest with a purpose. Swell Investing, a digital investing firm that focuses on Environmental, Social And Governance (ESG) principles, is looking to outperform standard ESG mutual funds and exchange-traded funds (ETFs) while helping investors with the mission of virtuous investing.
“Swell Investing, a digital investment platform incubated by Pacific Life Insurance Co., has created several portfolios of stocks that it says reflect causes such as green technology, clean water and disease eradication,” reports Bloomberg.
Newport Beach, California-based Swell offers several portfolio aimed at ESG investing and topping traditional equity benchmarks. For example, the firm's green tech portfolio is a “portfolio of companies building products and services that reduce our pull on the energy infrastructure,” according to Swell.
Since inception in late September 2016, Swell's green tech portfolio has outpaced the Russell 3000 Index by over 1,700 basis points. Familiar names in that portfolio include Tesla Inc. (TSLA), Jabil Circuit Inc. (JBL) and FMC Corp. (FMC).
Swell's renewable energy portfolio is a play on the coming renewable energy boom.
“The world is currently adding more renewable power each year than coal, natural gas, and oil combined. As the price of renewables goes down, many believe that solar could become the biggest source of power by 2050,” according to Swell.
That portfolio includes traditional utilities, solar companies, consumer discretionary and technology stocks.
Among other offerings, Swell features a healthy living portfolio comprised of “of companies that enable more of us to live longer, healthier lives through food, fitness, and technology,” according to the firm. That portfolio includes shares of DaVita Inc. (DVA), Quest Diagnostics, Inc. (DGX) and Unilever Plc (UL).
Three of Swell's six portfolios have outperformed the Russell 3000 Index since inception in late September 2016.
Above And Beyond
New ESG offerings, including ETFs, are reflective of the shifting socially responsible investing landscape and go beyond old guard ESG funds. The first generation of ESG funds usually started and ended with exclusion of companies engaged in gambling, pornography, weapons production and tobacco. Newer ESG investments are going further.
“Early incarnations of these strategies cut out entire problematic sectors, such as petroleum or weapons, which sacrificed performance,” according to Bloomberg. “More recent attempts have redefined ESG to include 'best-in-class companies' within these industries. That’s led funds to loosen their standards, including, say, the more ethically responsible oil explorers or gun makers in their portfolios.”
Still, many ESG ETFs are waiting to gain traction with investors. Of the roughly 50 such funds listed in the U.S., none have $1 billion in assets under management and only three have attracted more than $100 million in new assets in 2017. About 20% of the U.S. ESG ETF universe under a year old and a significant percentage are not even three years old.