New generation of investors changing look of portfolios
Millennial SMSF trustees and members may soon change the landscape of investment portfolios as ESG parameters become increasingly important.
With the government pushing its Net Zero policy and the move to establish a framework for credible reporting frameworks around ESG claims, the type of investments the next generation of SMSF trustees make could start to look very different to those now entering the retirement phase of their funds.
In 2018, following the Banking Royal Commission, Bell Direct equities analyst Julia Lee predicted that “wealth destruction” could come when strong ESG principles were lacking and it seems that foresight may now be coming to fruition.
Earlier this year, the Responsible Investment Association Australasia CEO, Simon O’Connor, said ahead of the ESG Summit 2023 (hosted by InvestorDaily) that interest in environmental, social, and governance investing had grown as more investors chose to engage with the sector.
This was despite 2022 throwing various challenges at those who were underweight or avoided fossil fuel and armaments as their investments suffered in the short-term, he added.
In its 2022 benchmark report, the association found the number of Australian assets managed using a rigorous, leading approach to responsible investment has hit a record value of $1.54 trillion, accounting for 43 per cent of the total market.
In addition, a record 45 per cent of investment managers were holding companies to account on matters relating to environmental and social issues and reporting back to investors on the outcomes achieved. This number more than doubled over two years, with only 21 per cent of investment managers engaging in such activity in 2019.
Meanwhile, the Australian Retirement Trust this week said ethical superannuation fund options may rank poorly against traditional rivals in new performance tests of their returns and fees because they avoid investing in dirty yet lucrative industries and often cost members more because of their small size.
However, Peter Wilmshurst, Portfolio Manager at Nanuk Asset Management, says their client base is looking towards global equity which he says ticks a lot of boxes in regard to industries or corporations that “are not doing harm”.
Nanuk Asset Management specialises in finding investment opportunities in companies that are invested in global environmental sustainability and resource efficiency, he says.
“And that number of companies is growing.
“In our universe, those companies have to have more than 25 per cent of their value from products and services that help the environment, and presently we have found around 1400 companies globally that qualify.
“There are large-, mid- and small-caps it is a developing market.
“The world is heading in a more environmentally conscious manner and companies and industries are also moving that way.”
Mr Wilmshurst says the ESG market is the next revolution in investment for the global economy and it will provide investors with attractive investment returns.
He added that diversification in these more sustainable industries also can add to an SMSF portfolio, providing a contrast with Australian portfolios heavily reliant on the finance and resources industries.
“There is a clear diversification benefit for our investors. Global diversification is something fund managers have done to push clients for a while now and.
“Australians have generally been doing a good job of increasing their exposure to global equities even while the Australian market has performed pretty credibly.
“The typical Australian portfolio, plus people’s house and their job, is driven by what goes on in our economy so people should really look to diversify internationally.”
