Ifunds Asset Management has launched a new range of ethical portfolios for retail investors. The new range will use passive investments but with active risk management designed to reduce “drawdown and volatility”.
The four portfolios – Cautious, Balanced, Growth and Aggressive – use exchange-traded funds and tracker funds to gain access to equity and government bond markets around the world.
All equity exposure is through ETFs and trackers that invest only in companies that meet socially responsible investing (SRI) criteria.
Chris Baynes, portfolio manager at Ifunds, said: “Two of the most powerful driving forces in our industry today are investors’ growing preference for socially responsible portfolios and the increasing popularity of low-cost passive funds.
“Our new portfolios deliver on both counts and provide a third benefit, which is active risk management.”
Strategy
Approximately half of each portfolio will be managed using a buy and hold strategy, which is a passive investment strategy where the investor buys stocks and holds them for a long period regardless of fluctuations in the market.
Actively managed risk control will be applied to the other half, with exposure to different asset classes “dialled up or down” depending on whether markets are “risk on” or “risk off’.
Risk is monitored daily on an objective basis using iFunds’ software system, which identifies whether the price trends for a range of asset classes are positive or negative.
When the trend is positive, the full allocation to that asset class will be applied. If it turns negative the allocation will be reduced and the balance held in cash until the trend turns positive again.
Baynes added: “Our sharp focus on risk management is designed to limit the impact of severe market falls. We’re also reducing the traditional reliance on bonds to help manage risk.
“Our portfolios can quickly reduce their allocations to fixed interest, as well as equities, and move into cash.
“Taking risk off the table in this way could have important benefits in protecting portfolios if we see interest rates start to rise in any significant way, leading to negative performance from bonds.”
SRI screening
Baynes added that the SRI screening of equity holdings positioned the portfolios towards the higher end of the ethical investment spectrum, as currently defined.
He added: “Over 75% of the world’s companies are filtered out because they don’t meet the socially responsible investing criteria.
“It means, for example, that the portfolios don’t hold Amazon, Facebook, Google or Apple. We believe there’s good evidence to show that excluding companies in this way need not inhibit investment performance.”
The ongoing charges figures for the portfolios are cautious 0.76%, balanced 0.78%, growth 0.81% and aggressive 0.85%.
The active risk management process of the fund is currently identifying global equities, US government bonds and European government bonds as “risk off” and the portfolios have moved to between 40% and 57% cash.
