Value Investing for Impact

How Following Your Values Can Impact Your Investments

July 24, 2018

By Colin O'Shea • Securities Analyst 

Recent studies that show "impact investments" can achieve market-rate financial performance may serve to deepen interest in this approach. Is it possible to align your investments with your values? A growing number of individual investors are insisting that it is.

Investing for a Purpose

The idea of investing only in publicly traded companies or funds that reflect your values is not new. It is, however, an approach that is gaining wider acceptance.

Traditionally, what a company manufactures or sells, where and to whom it sells its products, whether the employees are unionized or not, or whether the company operates in an environmentally friendly manner were not issues that dictated whether an investor chose to buy a company's stock. However, several decades ago, mutual funds emerged that based their investment decisions on criteria that were broader than simply making a profit. Some of these funds eliminated from their consideration companies that produced tobacco products, alcohol, or firearms, and others screened potential buys for their labor or environmental policies.

Since this early start, the concept of socially conscious investing has matured and gained traction. The interest is being fueled by the desire of many investors to use their money to make a difference at home and abroad. Sometimes referred to as "impact" or "sustainable" investing, this approach considers environmental, social, and governance issues as well as the potential for generating a positive financial return when it comes to choosing investments. Essentially, impact investing seeks to reward companies for good corporate citizenship as well as to fund initiatives that can make a change in the lives of the poor and marginalized.

Interestingly, research shows that women and millennials, in particular, seem to be especially supportive of impact investing. For example, a recent study1 found that 52% of millennial investors see the social responsibility of their investments as an important selection criterion, compared with less than 30% of World War II-era investors and 42% of Gen X investors.

What About Returns?

Recent studies that show impact investments can achieve market-rate financial performance may serve to deepen interest in this approach. One study2 from the Wharton School of Business at the University of Pennsylvania evaluated the performance of 53 impact investing private equity funds -- representing 557 individual investments -- relative to public market indices such as the Russell 2000 and other benchmark indexes. The study found that impact funds in the sample that reported seeking market-rate return demonstrated that they can achieve results comparable to market indices.

If you are interested in the concept of impact investing and think it may be something that you might consider, a conversation with your investment professional may shed more light on the subject, contact Security National Bank today.

Source/Disclaimer:

1Millennial and Generation X Investors, Spectrem Group, 2018.

2Great Expectations: Mission Preservation and Financial Performance in Impact Investments, The Wharton School of the University of Pennsylvania, 2015.

You should consider a fund's investment objectives, charges, expenses, and risks carefully before you invest. The fund's prospectus, which can be obtained from your financial representative, contains this and other information about the fund. Read the prospectus carefully before you invest or send money. Shares, when redeemed, may be worth more or less than their original cost.

About the Author

Colin O'Shea

Colin O'Shea is a Securities Analyst within the Wealth Management Division at Security National Bank, where he researches and analyzes assets and trade securities and helps develop investment strategies. A veteran who served in the U.S. Army for 12 years, O'Shea holds a Business Administration Degree from Morningside College.