Will Dickson, head of portfolios at P1 Investment management tells us why clarity is key when offering clients ethical portfolios
'At P1, the core asset allocation decisions that we make are applied across all our model portfolio services, hybrid, ethical and passive. This allows clients to blend services and tilt portfolios to meet their needs. For example, a client may wish to dip their toe into ethical investing, opting for 25% in an ethical model and 75% in a hybrid; or reduce costs by investing part of their portfolio in a passive solution. For us, it ensures efficient and consistent investment management of our portfolios and clarity for advisers looking across our propositions.
A Moderate Risk Portfolio
Our asset allocations are broken down into the core components of: cash, fixed income, UK, US, European, Japanese, Asian/emerging market equities, property and alternatives. Typically, we will consider Asia ex-Japan and emerging market equities as one allocation, especially in lower risk portfolios, as position sizing can become inconsequential and there is high correlation between the two.
Currently, a P1 moderate risk hybrid portfolio contains 64% in equities, 16% in fixed income, 14% in alternatives, 4% in property and 2% in cash. This represents a slightly cautious stance against our strategic asset allocation, with lower exposure to equities and a corresponding overweight to alternatives. We continue to favour alternatives over fixed income as a way of reducing risk within portfolios given the low yields on offer from bonds.
However, fixed income will always remain a key part of portfolios and the diversity within the asset class allows us to be more targeted with how we gain exposure. We typically combine plain vanilla corporate bond funds with more dynamic funds, such as the Jupiter Strategic Bond fund. This allows the portfolio as a whole to be more reactive to developments in the global bond market while remaining anchored to the core attribute of fixed income that we want to retain some exposure to, duration.
Additionally, we are keen to utilise niche funds such as the Royal London Short Duration Global High Yield Bond or GAM Star Credit Opportunities funds as they can often provide attractive opportunities for returns as well as enhance diversification.
Our ethical models have an enhanced fund selection process to ensure that investments chosen meet high ethical standards and are not merely ‘greenwashed’ as a marketing gimmick. As such, funds are required to pass our ethical due diligence before they can be considered for inclusion within portfolios.
This continually evolves as we seek to drive up standards within the industry, from fund managers to their investments and extend our choice in what is still a niche area.
Furthermore, we strive to ensure that we are a leader in the development of ideas in ethical investing. The recent formation of our external ethical oversight committee has led to several advances in the way we assess and engage with fund managers.
Our oversight committee deliberately includes non-financial industry individuals with expertise in environmental, social and governance issues. This has allowed us to advance problems identified from outside the financial services industry to fund managers and use the power of the markets to enact positive change.'