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June 21, 2021

What lies under the bonnet of a fund on The Big Exchange

Businesses providing renewable energy or recyclable packaging may be among the first that come to mind for people seeking to invest responsibly. However, companies across a broad range of industries are helping to bring about positive change. In all aspects of life, consumers are demanding sustainable products with less waste and the winners will be those that can deliver them.

Businesses providing renewable energy or recyclable packaging may be among the first that come to mind for people seeking to invest responsibly. However, companies across a broad range of industries are helping to bring about positive change. In all aspects of life, consumers are demanding sustainable products with less waste and the winners will be those that can deliver them.

We take a look at some different lenses and themes that fund managers use when impact investing.

Themes for a sustainable world

Thematic investing involves taking a ‘top down’ approach to stock selection by evaluating major social and economic trends. Some of these trends will have a transformational impact on society and the planet. Analysing this impact helps fund managers to identify companies that are providing solutions to the opportunities and challenges that arise.

The impact of many of today’s key themes can be measured by mapping them to the United Nation’s Sustainable Development Goals. These are a collection of 17 interlinked global goals designed to be a “blueprint to achieve a better and more sustainable future for all”.

Funds with a sustainability or impact focus are likely to invest in companies that are leading the way with innovative products and services, but aiming for financial returns is important to them too. If these companies prove successful, and sales and profits grow, they also have the potential to provide a positive outcome for their investors.

The challenges are far reaching. For example, although climate change solutions are at the forefront of the sustainability revolution, demographic trends and resource scarcity will require advances in food production and medicines, as well as more efficient use of water and commodities.

The transition to a lower carbon world has brought opportunities in areas such as wind power, energy efficiency and electric vehicles. Ageing populations mean we need to plan for longer lives, creating demand for healthcare, leisure and fair financial services.

Technology is also a theme which reaches across many industries, often disrupting them for the better. Some funds invest in companies which develop the technology whilst others prefer to focus on the ‘picks and shovels’ suppliers of components and services.

What’s for sure is that robotics and automation, digital content, e-commerce and use of data are all set to develop rapidly and improve our lives. Automation, for example, is driving improvements in drug discovery, surgery, and safer transportation.

Governments back green growth too

As well as benefiting from demand for sustainable solutions, many industries are receiving an additional boost from government spending to help economies recover from the global pandemic.

With Joe Biden’s plan to ‘build back better’ by tackling climate change, the EU Recovery plan, and Boris Johnson’s 10-point plan* for a green industrial revolution in the UK, billions of pounds are set to flow into building the infrastructure and industries that should underpin future prosperity.

The US has pledged big bucks; Biden’s $2tn investment plan** includes a carbon-free power sector by 2035. Meanwhile, the EU’s €750bn Recovery Fund*** will focus on climate change and digital initiatives.

The Big Exchange funds have been put to the test

The sustainable and thematic investing we have discussed is garnering much attention and there are more and more financial products available to meet increased demand. However, we believe some are jumping on the bandwagon without a clear process or without strict disciplines. This is known in the industry as ‘greenwashing’, when funds or individual companies exaggerate their green credentials.

We acknowledge that the measurement of impact is still evolving, and regulation is in its infancy, but you can rest assured that all the funds on The Big Exchange’s platform have been put through a stringent assessment process. The medals we assign from our own assessment process, reflect the fact that some funds have greater impact than others, and we provide the information to help you decide how you wish to invest based on what matters most to you.

All the funds we offer are actively managed by fund managers who closely engage with companies rather than simply relying on a quantitative screen. They have in-depth knowledge of all their holdings and can react quickly to any controversies that may arise, which they can sometimes do as ‘perfect’ does not yet exist. Undeniably, investing in new technologies does carry risks but experienced fund managers should be well-qualified to sort the wheat from the chaff.

Building a diversified portfolio

The Big Exchange is all about investments which have a positive impact on people and planet but also target a financial return. It is also important to build a diversified portfolio which aligns with your attitude to risk.

The good news is that our funds and bundles enable you to invest across many geographies and investment types (or asset classes), covering equities, bonds, and infrastructure (with a property fund coming on board soon).

In coming weeks, we will dig a bit deeper into the themes our funds are accessing and highlight some of their holdings which are making a positive impact.

To learn more about how to become a positive impact investor visit The Big Exchange or follow on Instagram, LinkedIn, YouTube, Twitter or Facebook or download The Big Exchange App in the app store to manage how you save, invest and spend your money, all from one place.

Please remember that when investing, making money is not guaranteed and your capital is at risk. The value of your fund can go down as well as up. Tax treatment depends on an individual’s circumstances and may be subject to change.

The Big Exchange (TBF) Limited is a wholly-owned subsidiary of The Big Exchange Limited. The Big Exchange (TBF) Limited is an Appointed Representative of Resolution Compliance Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 574048). 6147

Sources:

* https://www.gov.uk/government/publications/the-ten-point-plan-for-a-green-industrial-revolution

** https://www.theguardian.com/us-news/2021/mar/31/biden-promises-historic-2tn-spending-in-infrastructure-but-capitol-hill-fight-awaits

*** https://ec.europa.eu/info/strategy/recovery-plan-europe_en

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