- The clock is ticking to make the most of any unused ISA allowance
- A Responsible fund could make a good addition to many investors’ ISAs
- We look at three funds that could suit many portfolios – a global option, an income option and a more conservative option
Stocks & Shares ISAs offer the opportunity to grow your money free from tax. So, if your investments go up in value, you won’t have to pay capital gains tax. And if your investments make income, you won’t pay UK income tax either.
Q4 2022 hedge fund letters, conferences and more
With the end of the tax year just over two months away, now could be a great time to take advantage of your £20,000 ISA allowance. If you don’t use it by midnight on 5 April, it’s gone for good.
Why Consider Responsible Investment For Your ISA?
Dominic Rowles, Lead ESG Investment Analyst, Hargreaves Lansdown:
“Responsible Investment can be good for your conscience, and good for your wealth too.
It’s not necessarily about narrowing your investment horizons to renewable energy companies and electric vehicle makers. In its simplest form, Responsible Investment can just mean considering environmental, social and governance (ESG) issues when you invest.
Issues like whether a company manages its carbon emissions effectively, whether it treats its customers, staff and suppliers fairly, or whether senior managers are incentivised appropriately.
ESG isn’t just about risk though. It can help highlight opportunities too. For example, a company could be making more progress when it comes to reducing carbon emissions than its competition. But if this isn’t being reflected in the share price, an opportunity could be on the cards, providing the rest of your analysis stacks up.
If you don’t have the time to research individual companies for yourself, you could consider a fund. There’s a huge variety of Responsible Investment funds available.
While most mainstream fund managers consider ESG factors when they invest, some go further by avoiding controversial areas, like tobacco and weapons. Others seek companies that have a positive impact on the on the environment and society. We look at three below, each taking a different approach to Responsible Investment.
Global - Wide Ranging Investments In Global Stock Markets
We think a global ESG tracker fund could act as the backbone for lots of responsible portfolios.
The Legal & General Future World ESG Developed Index fund aims to track the performance of the Solactive L&G ESG Developed Markets Index. It's made up of almost 1,500 companies based across global developed markets, such as the US, the UK and Japan, and diversified across lots of sectors, including technology, healthcare and financials.
The index increases investments in companies that score well on a variety of ESG criteria – from the level of carbon emissions generated, to the number of women on the board and the quality of disclosure on executive pay. It also reduces exposure to companies that score poorly on these measures.
The fund won't invest in persistent violators of the UN Global Compact Principles (a UN pact on human rights, labour, the environment and anti-corruption) or companies involved in controversial weapons, or those with significant exposure to controversial weapons, civilian firearms, thermal coal and oil sands.
An Option For Income
The UK is a world-renowned income market, so if income is your priority, you could consider investing in a UK-focused responsible income fund.
The Janus Henderson UK Responsible Income fund aims to give a good level of income, alongside capital growth over the long term. Andrew Jones has been at the helm since January 2012 and has over 20 years’ experience managing UK equity income funds.
His investment process starts with a screen which excludes companies involved in areas some investors consider unethical, such as alcohol, armaments, gambling, non-medical animal testing, nuclear power, tobacco and fossil fuel power generation (although companies generating power from natural gas may be allowed if the company's strategy includes a clear plan to transition to renewable energy power generation).
All investments must also be compliant with the UN Global Compact.
From the remaining universe, Jones looks for companies with proven and understandable business models, high-quality management teams and strong positions in their industries. He also likes companies in a strong financial position with plenty of cash flow, allowing them to reinvest for future growth, while at the same time rewarding shareholders with rising dividends.
A More Conservative Option
Bonds are generally less volatile than shares, so they can help with diversification. They also tend to grow more steadily over the long term.
We think the Liontrust Sustainable Future Corporate Bond fund could be a reasonable option for investing in corporate bonds. Managers Stuart Steven, Kenny Watson, Aitken Ross and Jack Willis form a view on the outlook of the economy and then invest in bonds issued by companies that can hopefully thrive in that environment.
Sustainability and ESG analysis are fully integrated into the team’s investment process. They aim to identify bonds issued by high-quality companies whose core products or services make a positive contribution to society or the environment.
The fund avoids companies that makes more than 5% of their revenues from alcohol, animal testing services, coal, oil & gas, gambling, intensive meat and fish farming, nuclear, ozone depleting substances, pornography, tobacco or weapons systems.”
