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New SRI portfolio draws in SMSFs

Advisory firm VFS Group has launched a socially responsible investment (SRI) portfolio with SMSFs in mind as trustees’ need for greater control begins to progress into opportunities that better align with their values.

VFS Group investment manager Renera Thompson said the portfolio, which was soft-launched in July, provided an avenue for all Australian investors to create, invest and protect their wealth without having to compromise their socially responsible and ethical values.

“We’ve designed the portfolio to have SMSF investors in mind and we find it’s just a natural progression [of their control characteristic], so this is why we built our investment strategy – with them in mind and with what their values are,” Thompson told selfmanagedsuper.

“Our allocation process would begin with the positive and negative screen as this will ensure that we eliminate the companies that don’t fit our strict environmental, social, ethical and governance criteria, as well as their values.

“We’ll then refine the investment and focus on the companies that do meet our highest ESG (environmental, social and corporate governance) ratings of 75 and above, but usually we find a lot of the companies that we’re currently invested in meet the 90 and above bracket.

“We go through the SOA (statement of advice) process and we have an ethical factfinder, so to speak, where we find we may have some clients that don’t mind a little exposure to certain negative screens that we may have in place, so we’ll also be able to tailor it towards the investor as well.”

She said the portfolio invested in companies, businesses and sectors that had demonstrated, through their activities and ventures, a commitment to sustainability, as well as ensuring maximum benefits were achieved with minimum negative impact on the environment and society.

Investments include domestic and international equities, and exchange-traded funds, ranging from eight to 12 stocks for diversification.

The portfolio has returned 3.40 per cent since inception.

Thompson said there was currently a strong opportunity for ethical investment, with the group experiencing early interest and demand from SMSFs.

“We found that in recent years there has been considerable growth and demand from individual investors who are very passionate about ensuring that future generations are able to prosper through sustainable practices which have been implemented by companies today,” she noted.

“Maybe 10 years ago there was that misconception and myth that you are either a do-gooder investor or somebody who wants to make a return on your investment, but there’s been a shift and if these companies aren’t doing right by their investors and by their customers, they’re not going to turn a profit.

“I find that a lot of socially responsible companies that do have a diverse board do have higher returns on equities, higher returns on sales, higher returns on their invested capital and in turn become an overall good investment prospect for our clients.”

Another feature of the SRI portfolio’s investment process is its separately managed account model.

“This means that the investments are held in the clients’ names, they’re not pulled together with other assets like other conventional managed funds and it ensures the security and integrity of our clients’ accounts, as well as liquidity, which is paramount to SMSF trustees,” Thompson said.

VFS Group was established six years ago and offers SMSF establishment, administration, planning and investment services.

SMSFs make up over 70 per cent of its client base.

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