I previously outlined the philosophy behind the investment approach that I've dubbed '3D Investing', and in a continuation of an exploration of the thinking behind this approach, I'd like to explain why I think its distinctive and why I think its worth developing.
|The ubiquitous wind turbine image can mislead
Its my experience that ethical or socially responsible investment portfolios often sound great in theory, and are promoted with pictures of wind turbines and the assurance that someone is looking after your money so you can sleep easily at night, but the reality is sometimes disappointing. I believe that 3D investing is very different to this for a number of reasons.
The proportion of ethical funds investing in social or environmental solutions is often low, so your money isn’t actually doing that much good. 3D investing requires measurement of how much of each fund is invested in companies providing social solutions, and what ethical impact each stock has. It is then possible to identify those funds with a relatively high social impact, enabling investors to make a difference with their money.
Typically, ethical funds profile companies with positive attributes but say little about more controversial holdings. 3D investing actively seeks to identify any potential areas of concern so that investors are aware of any social compromises and can make informed judgements as to social suitability.
"3D Investing identifies areas of concern so that investors are aware of any ethical compromises, whilst also assessing how well a fund is addressing the inevitable ethical conundrums"
Ethical investment is often reduced to maximising investment returns from a pre-described universe of ethically screened stocks or funds. Despite having an ethical badge, this does little to make a social impact. 3D investing does not seek to chase financial returns at the cost of watering down the social impact, nor is it a philanthropic gesture. Rather, it seeks to deliver on financial expectations by investing in a broad portfolio of well managed funds, all of which have a social purpose.
Investment not Trading
The average holding period of equities is measured in months rather than years. This makes ‘investing’ more like a trade than a true investment. There is no social value to this. 3D investing therefore holds investments on a long-term basis and does not seek to change them unless there is a fundamental change in outlook or the needs of the investor.
"Much 'investment' is trading with little social benefit"
Wider Choice of Assets
Portfolio managers virtually all claim to spread risk by appropriate asset diversification, but this often comes down to a simple split between bonds and equities, with little or no allocation to alternatives. 3D investing offers a much wider choice of assets including microfinance, social property and infrastructure. As part of a diversified portfolio, these contribute to reducing overall risk.
Investment is commonly reduced to facts and figures. Indeed some investment analysis discusses numbers without even stating what the company does! 3D investing seeks to inspire investors, to get investors excited about their money and what it can achieve. Existing ethical investment providers try to do this too, but in all too many cases its a piecemeal approach whereby only a select few stocks are picked out, conveniently failing to justify the rest.
For me, inspiring investors across the spectrum of different types of investment and backing this up with clear evidence, is the essence of what I'm talking about. Can I, with hand on heart, know that each and every one of my investments has a social value, and can I say what that is? I hope I can demonstrate that this is indeed the case.