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Is Values-Based Investing Right For You?

Values based investing

Frontier has noticed that the area of values-based has been getting increased attention recently. Values-based investing is an attempt to invest money in ways that are in alignment with one’s core values and beliefs.

For example, some people are now seeking to avoid investing in the securities of firearms companies due to growing incidences of gun violence. The environment, human rights, drug and alcohol addiction, and religious beliefs are other social causes and issues that many people feel strongly about and want to invest their money in accordance with their beliefs.

Making a Positive Social Impact

Those practicing values-based investing take into consideration environmental, social and governance (ESG) issues when deciding how to invest money. The goal is to make a positive social impact, or avoid making a negative social impact, while also earning high rates of return on your money.

According to our research, values-based investing has become more widespread as more investors look for ways to make a positive social impact with their investments — or to put their money where their mouth is. According to the 2016 US SIF Foundation biennial Trends Report, the total U.S.-domiciled assets under management using values-based strategies stood at $8.72 trillion in 2016. This was an increase of 33 percent since 2014 — and a 14-fold increase since 1995.

There are currently more than 1,000 values-based mutual funds that take ESG criteria into consideration when making investments. Product-specific criteria, such as restrictions on investments in alcohol and tobacco, apply to about $2 trillion in assets, while climate criteria applies to about $1.4 trillion in assets. Conflict risk analysis, or the exclusion of companies that do business in countries that sponsor terrorism or have repressive regimes, applies to about $1.5 trillion, according to the Trends Report.

Values-Based Investing Strategies

Frontier recongizes the following three main strategies for practicing values-based investing:

  1. Investing in companies that promote actions in alignment with your core values. A good example of this is businesses that are involved in sustainable energy production. On the flip side, you can avoid investing in businesses that promote actions in conflict with your values. Businesses in the alcohol, tobacco, gambling and pornography industries are a few examples of these kinds of companies.
  2. Striving to proactively influence corporate decisions affecting certain causes by getting involved in shareholder advocacy and engagement. For example, you can file shareholder resolutions, try to initiate constructive dialog with corporate leaders and decision makers, and attempt to draw media attention to issues that corporations might be able to influence.
  3. Investing in initiatives that will provide business capital to communities that are underserved by traditional banks and other sources of credit. These initiatives often provide low-interest loans to entrepreneurs and mirco-business owners both domestically and overseas in order to help spur economic development in under-developed regions.

Finding ESG Mutual Funds

Based on Frontier’s research, the easiest way to become a values-based investor is usually to buy the shares of mutual funds that use ESG criteria when choosing companies to invest in. For example, funds might use negative screens to avoid investing in businesses that are involved in potentially objectionable activities like those noted above. Or they could seek to invest in businesses that support your values and beliefs, such as sustainable energy production or other environmental causes.

The US SIF Foundation’s website includes a performance chart listing more than 200 values-based mutual funds. and the Christian Investment Forum are other good resources for finding values-based mutual funds.

If you would like to “do good” and impact society positively while also earning competitive returns on your investments, you should look further into values-based investing. Please contact us if you have more questions.

The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC’s (“Frontier”) investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.