Want to make easy money on the stock market? Of course you do. We all do. But now there may be one thematic investment sector that could leave you feeling richer and more saintly at the same time.
I am of course referring to the rising consciousness of the great British public to invest in companies and schemes more likely to benefit the environment (as well as their pensions and pockets).
The issue of ethical investing seems to get proponents hot under the collar. Questions abound about what exactly is ethical investing? And what about SRI (socially responsible investing)? How and why is that different from ethical investing ?
However, while the industry prides itself on tackling these thorny issues investors might want to paddle a different canoe, so to speak. Because the real issue about ethical investing is not what constitutes it but how much capital is likely to flow into those funds that investors perceive as having noble characteristics.
“Ah Roddy, that’s so obvious,” you cry. I’m inclined to agree. Many investors are aware of thematic investing. However, few really exploit it in any great numbers. And to be honest you would be wrong to conclude this is really the point.
The big news about ethical investing is regulation. In a world where, historically, businesses were largely allowed to find their own way through both the opportunities and challenges of new investment themes it is worth noting, where ethical funds are concerned, times they are a changing.
As I write, amendments to a draconian piece of regulation called MIIFID 2 is being amended to introduce yet more regulation around the suitability and appropriate knowledge requirements of advisers on ethical/sustainability issues.
Personally speaking, I would have thought the EU bureaucrats had enough to do with (dare I mention it ) Brexit. But, seemingl,y they are undeterred by such challenges. As if adding to the Brexit challenge list along comes a final piece of legislation to sit next to the EU’s climate action plan.
Entitled ‘Consultation on integrating sustainability risks and factors in MIFID 2’, investors can begin to see how the flow of capital from investment firms will increasingly have to flow into ethical funds, no matter how you define them. Get in early and you should benefit from the momentum investing effect —where the weight of capital inflows pushes asset values and share prices up and up.
While clearly risks on thematic funds are greater than the standard range of investments, there is little doubt in my mind that regulated firms will be keen to embrace the new rules while benefiting from the halo effect.
You, on the other hand, simply need to decide how much of your capital to allocate to this sector now, in advance of the new gold rush.
• Roddy Kohn is a chartered member of the Securities Institute and Managing Director of KohnCougar