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GUEST ARTICLE: Yes, Impact Investing Really Can Generate Alpha - WHEB Asset Management

Ted Franks, WHEB Asset Management, Partner, 1 August 2016

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A practitioner in the field known as impact investing examines the evidence with a mass of data.

WHEB seeks out high positive impact stocks, companies which are actively solving rather than exacerbating society’s challenges. 

Currently, this means looking mainly outside of the MSCI, albeit at large and mid-caps with established profitability across multiple sectors. 

However, our universe of stocks has been consistently expanding over the past 10 years as the trend for making money out of solving some of humanity’s biggest challenges has become established. 

Developing market
In its report, Investing in a Time of Climate Change, the investment consultancy Mercer provides two key ways of looking at the risks of disruption to business as usual. 

Firstly, by ranking and comparing short-term and long-term global risks it serves to show where long-term investors need to focus their attention. 

Secondly, by using scenario analysis it is possible to start modelling the downsides of specific market risks created by climate change as well as map out wealth protection and value creation strategies that navigate these risks effectively. 

There are now a wide array of frameworks, such as Mercer’s, Heron’s and WHEB’s, that can be used to assess impact across asset classes. These help investors to understand and appreciate how investments can contribute to a better world whilst also creating genuine long-term wealth.   

Next steps
We are seeing increased interest and flows into our fund from a range of wealth managers across different investment strategies. Certain customers and client segments may be more inclined to put their money to work in a way that is closer to their values. 

For instance, there is evidence that so called millennials are more motivated by impact investing and young tech savvy entrepreneurs or professionals that have made a career in the sustainability sectors are also attracted to this area.

Impact investing has for many years been largely the preserve of high net worth families, philanthropists and foundations. We believe that we have reached a tipping point in the wealth management and institutional market which will see impact investing assume a more central and visible role for a much broader group of investors.

(Note)

4. The growth rates of the universe are weighted average growth rates based on their current market capitalisations. The growth rates of the MSCI World are weighted average growth rates of the constituents based on their weightings in the index. The five-year historical sales growth of individual stocks is calculated as: [((most recent sales / sales five years earlier) ^ 0.2) -1] * 100. The one-year forecast sales growth of individual stocks is calculated as: [(sales estimate for current financial year / comparable sales a year earlier) – 1] * 100. Source: Bloomberg (five-year and one-year data are the latest available from Bloomberg as at 31 December 2015). 

About the author
Before joining WHEB, Franks was a sector specialist in the renewable energy and utilities sectors at Dresdner Kleinwort and KPMG. He is a chartered financial analyst and chartered accountant.

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