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How an investment adviser should build a SRI portfolio

This article is part of
Guide to Sustainable and Responsible Investing

“It’s easy enough to go all-in these days and most of our clients invest 100 per cent ethically,” says Olivia Bowen, director and financial adviser at Gaeia.

Ms Bowen adds that sometimes she uses Prudential with-profits-style funds for older clients who need a bit of stability alongside unit-linked investments.

Julia Dreblow, founder of sriServices, counters that she would generally encourage caution “as there are few truly low-risk SRI options”.

She admits this can make portfolio planning difficult for lower risk SRI investors. “However, there is a wide range of equity, bond and property options available so for investors with an average or above-average risk tolerance there are generally sufficient options.”

To build a portfolio for various clients of different degrees of SRI, an adviser has to merge each clients’ SRI aims with their investment goals to achieve a result that suits their personal needs.

“There are different ways of doing this,” says Ms Dreblow. “Sometimes it is straightforward but other times an adviser may need to ask their client to indicate whether or not they are happy to compromise and build in some options that do not precisely match their ethical/SRI aims.”

Clients are often comfortable mixing and matching, she notes, which often surprises non-specialist advisers. “What can cause problems however is when advisers either do not offer SRI options, or says such funds are inappropriate without giving them serious consideration.”

Many ‘mainstream’ clients or advisers might nervous about choosing how to balance performance and responsibility.

Mike Appleby, investment manager, SRI Team at Alliance Trust, does not believe there is a direct trade off. “There is no evidence that being invested in SRI funds will result in significantly different investment returns than non-SRI funds,” he says.

Ms Dreblow observes that there are two prevailing criticisms of the SRI sector among advisers: either that funds exclude too many companies and so underperform, or that funds are not selective enough on which companies they invest in so are ‘not really ethical’.

“Taken together these are pretty hard for fund managers to deal with. Both of these criticisms have elements of logic but by bringing them together they illustrate not only the pressure fund managers are under but also why a diverse range of strategies are necessary.”

Different approaches of course suit different people and no single approach can appeal to everyone in ethical or ‘regular’ investments. As usual, it is down to the adviser to understand clients aims and then work out what funds suit them.