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Leading The Way

Many things have changed over the last ten years. Few are more prominent than the continuing rise in the awareness and popularity of investing in a way which benefits humanity and the environment in which we live. Marking the ten year anniversary of their ethical model portfolio service, Sue Whitbread talks to Wayne Bishop, CEO of King and Shaxson Asset Management, about the changing market and why he is so positive about the future prospects for responsible investing and also the model portfolio approach.

FAM: Firstly, congratulations on celebrating the first ten years of your Model Portfolio Service – how has the market changed over that time?

WB: Thank you. Our ethical model portfolios (MPS) were launched in February 2010 and can be accessed through various platforms. Since then, we’ve seen substantial changes in the market. Ten years ago there were a small number of platforms offering a Managed Portfolio Service and the concept was still considered a relatively new idea back then. Nowadays it has become common practice with a large number of platforms available. The rise of passive investing has had a big impact on what goes on in the market in general, but not necessarily on what we do.

One particular change that we’ve seen is that when we first brought out the product we would use a number of exchange traded funds (ETFs). MIFID II has made ETFs more difficult for some advisers and platforms to justify on some of the products so we have stopped using those. We’ve also seen some issues with the ethical application of stock borrowing and lending on that front. The MPS concept itself has become widely accepted and widely embraced by the IFA community. It represents an efficient and effective way of providing their clients with a properly diversified portfolio without the need for the adviser business having to get involved in the detail of the day today asset allocation and fund selection decisions.

Whilst the running of conventional model portfolios can often be feasible for an IFA business to manage in-house, when it comes to an ethical and SRI model it can be quite difficult to do. There is so much more detail to have to look at, particularly as regards the different types of holdings within the funds and the ethical acceptability of those holdings. It requires many additional research processes and we believe that this will continue to evolve. We do not know how many platforms there will be in a few years’ time of course and how much more consolidation will occur. One thing we do know is that the whole acceptability of MPS has now been widely embraced. We’re also seeing costs coming down both from a platform perspective and from a management perspective making it an even more attractive product for advisers to consider for their clients. Our length of experience in this specialist arena is a major factor in our success.

As we would expect, there has been increased competition coming into this space over the years. We generally find that these products tend to be more quantitative-based which sometimes does rather miss the real heart of the matter when it comes to ethical investing, and that is what is desirable for the client.

Interestingly, over the last five years we’ve seen ethical models generally outperforming conventional portfolio models and with lower volatility. This has a lot to do with the oil price and general commodity prices which add volatility to the market and have generally under performed. These have historically been core holdings in many conventional portfolios and indices. However, this means that a client no longer has to consider sacrificing returns in order to pursue an ethical investment mandate.

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