How wealth's next generation is tackling ESG - Paris speaks with Citywire

Ethical portfolios have historically had a reputation for poorer returns compared with a conventional basket of investments. But has the pandemic market volatility actually supported the case for environmental, social, and governance (ESG) portfolios?

Citywire have spoken with Paris Jordan who has shared that over the year to the end of March 2020, Sanlam's Balanced model dipped by 1.9%, while its Conservative SRI model has grown by 1.8%.

Top holdings in the wealth manager’s SRI Balanced Model Portfolio include the EdenTree Amity Short Dated Bond, Legg Mason ClearBridge US Sustainable Leaders, and Brown Advisory US Sustainable Growth funds.

Paris Jordan, who manages the SRI portfolios, said these have experienced ‘substantially less volatility’, with the balanced portfolio 4.58% ahead of peers in the IA Mixed Investments 40-85% Shares sector.

She added that some areas have taken a hit, however. ‘Unsurprisingly, our high yield funds have struggled in this environment. Ethical investing is often not considered hugely compatible with investing in high yield bonds. While we are sympathetic to this view, selecting the credits that are best-in-class can be hugely beneficial for the wider portfolio over the long term,’ she said.

‘However, it does highlight that ESG funds aren’t completely immune to the market conditions, and tha

Resilient pockets

Sanlam’s Jordan noted she has added to the Eco Advisers ESG Absolute Return fund, due to its ‘admirable returns’ in the market lockdown.

She said: ‘The fund is a market neutral long/short product which aims to solely capture alpha from the ESG factor. Given it is up 1.96% year-to-date, it’s a good indicator that ESG factors can produce value, even in tough environments.’

Will the ESG hype remain?

Earlier this year, research from Charles Stanley Direct suggested that 48% of UK managers expect to increase their allocation to ESG investments over the next three years, but will demand for these funds falter as investors go into recovery mode?

Jordan said: ‘Instead of seeing demand dampen for ethical funds, I hope that the recent market volatility has actually cemented ESG as something that should make up the cornerstone of a client portfolio. We have witnessed these portfolios outperforming non-ESG portfolios while taking on less risk. If anything, the popularity seen in the past few years and subsequent flows have been justified.