ETFs & ESG – Investing in a Modern World (Or Investing Like the Cool Kids Do)

Whiskey & Spirits Investing

Building investment portfolios is a core part of what we do as part of the financial/investment planning process. We pride ourselves on the fact that no two client portfolios look the same. That everyone’s personal circumstances are considered, prevailing opportunities are taken and areas of personal interest are incorporated.

Ten years ago, a typical portfolio had a basket of blue chip Australian Shares (a bank, a mining company and a supermarket at it’s core) perhaps headlined by a listed investment company like Argo Investments or Australian Foundation. Throw in a term deposit or two, maybe a mortgage fund or some capital notes, an international shares managed fund and maybe a few listed property trusts and voila! A high quality, diversified portfolio!

Many of our clients still have these types of portfolios and they have performed excellently, navigating significant market corrections while continuing to meet their goals and objectives. There is nothing wrong with this type of portfolio at all!

It’s fair to say things have changed in recent times! Client’s requirements for their investments have remained the same (long term capital growth, sustainable reliable income streams, liquidity etc) but the options we have available to us have changed dramatically.

Whiskey & Spirits ETF?

You can purchase on the share market an exchange traded fund (ETF) that covers almost any theme you like. I mention the whiskey one above, simply because it illustrates one of the many options that are out there (this one is only available in the US at the moment). Global thematic investing has become hugely popular, and while I thought it might take a while to reach the offices of Wakefield Partners, I have been pleasantly surprised at how often new investors raise their personal interests with us and we are able match them with a corresponding investment. Hydrogen, battery technology, global health care, cloud computing, cybercrime, e-sports, gold, country-specific equities – you name it, chances are there is an ETF out there that covers it.

An exchange traded fund is relatively simple to understand. Buying a unit/share in one (on the ASX), you get access to a basket of investments that meet the theme/criteria. For example, buying a broad ASX200 ETF gives you exposure to all companies in the ASX200 and therefore moves in line with the broader index. Buying a themed ETF, such as a battery technology ETF, gives you access to a basket of companies that operate in that sector. ETFs have been explained in detail in many other places (our go to is the ASX website: Investing in ETFs and other ETPs) and an introductory article is in the planning stages from us. They are not without risk or cost, however they do open up parts of the investment universe that weren’t previously available.

Many of our older portfolios now have an ETF or two added in (predominantly for international share exposure) but many of our new portfolios have ETFs as their core investments. The global and domestic take up of ETFs has been phenomenal, and that is being replicated in our office.

It wouldn’t be a modern investing article without mentioning cryptocurrency. It is difficult for us to recommend crypto as a direct investment (in fact, current laws prohibit financial advisers from doing so) however the race is on to develop Australia’s first cryptocurrency ETF. The process is well underway, and I’d expect in the first half of 2022, there will be an offering available to retail investors. A small allocation to this in your portfolio may alleviate your FOMO and allow you to join in on all of those “cool kid” conversations!

ESG and ETFs

One of the major beneficiaries of the rapid expansion of ETF offerings has been the environment, social and governance (ESG) movement. We have written a couple of ESG articles in the past which discuss the thematic in detail (The Ethical Conundrum! and Sceptical About Investing Ethically). It’s fair to say that ethical investing has become mainstream. Major Australian companies are reviewing the way they conduct business to avoid shareholder backlash on ethical grounds.

ESG now comes up in most discussions with investors. Perhaps once dismissed as a fad, there is no ignoring it now. The hardest part about catering for ESG investment is that everyone’s filters are different. What constitutes an ethical investment for me may differ for you. A growing range of ETFs suit those investors who want to do the right thing, but are perhaps unsure where to start. From the larger, all-encompassing ETFs (BetaShares Global Sustainability Leaders – ASX: ETHI and BetaShares Australian Sustainability Leaders – ASX: FAIR) which sort through the larger, blue chip companies locally and internationally, to more niche thematics such as climate change innovation and hydrogen, there is likely to be something that fits alongside your philosophies.

Again though, although access to ESG investments has never been easier, it is important that the underlying holdings of ETFs are reviewed carefully to ensure they align with your beliefs and are quality investments in their own right. Whether ethical investing or not, the key investment principles of buying quality and holding for the longer term will always win out!

With seemingly a new ETF released every week, there are so many exciting opportunities that lay in wait. Don’t hesitate to speak to one of our advisers about modern investment strategies. Meanwhile, I’ll save my money waiting for a Whiskey & Spirits ETF to launch in Australia!

This website contains general advice which does not consider your particular circumstances. You should seek advice from Wakefield Partners who can consider if the general advice is right for you.