Holly's Blog: Eco-Friendly(er) Alphabet Soup
11 July, 2017
BlackRock announced they have launched a “multi-asset ESG ETF”. Now before you all bang your heads on the table and groan “what’s one of them when it’s at home then!?”, this is much more interesting than it sounds...
Sallying forth in a torrent of acronyms, yesterday global investment giant BlackRock announced they have launched a “multi-asset ESG ETF”. Now before you all bang your heads on the table and groan “what’s one of them when it’s at home then!?”, this is much more interesting than it sounds. Let’s break it down.
Multi-asset just means a blend of different types of investments – or a Pick’n’Mix. A dollop of shares, some bonds, occasionally property and commodities. And these are often sourced from all around the world too – the US, Asia, Europe – you get the picture. A mixed and diverse bag. You say how spicy or risky you want it to be (White Bread/Korma/Vindaloo) and you get a ready-made option which an expert has blended for you. The 'White Bread' type will have a bigger chunk of bonds and cash. The Vindaloo will be mostly shares. Simples!
ESG stands for 'environmental, social and governance' factors. In other words, investments in firms or assets which won’t ruin the planet, won’t treat people badly and aren’t run by crooks. For example, the BlackRock literature says you reduce carbon emissions by 40% if you switch from a traditional portfolio to their ESG equivalents.
ETF is an ‘exchange traded fund’. A thing which is bought and sold like a single share – but is itself a collection of lots of different diverse investments, offering access to any group of investments, from the FTSE100 to banking shares to currencies. ETFs are to finance what the NOW albums are to music. You buy one thing and get lots of different bits under the bonnet making up the whole. So you could buy a FTSE100 ETF – and in one fell swoop get access to every single one of these 100 shares but with only one purchase.
So – deep breath – a multi-asset ESG ETF is a complicated way of saying a mixed bag containing 1000s of conceptually non-dodgy global shares and bonds – which is easy to buy, which an expert has mixed together for you, and which gives you the right blend of things to meet your risk profile and appetite.
The final sweetener with this new thing from BlackRock is that you get this single product, with such broad exposure, where someone else has worked out where to invest and what in AND added an ESG filter on the top – for 0.25% a year. And I genuinely think that is progress. It’s simple. It’s diversified. It’s low-cost. And it’s relatively sound.
If you’re interested and want to find out more,these launch on the London Stock Exchange from 16th September, so you’ll be able to research them via your chosen investment platform. And I suspect we’ll see many more launch over the coming months.
Costs are coming down
Because ETFs are bought and sold like shares, they come with different associated administration costs than more traditional funds. For example, Hargreaves Lansdown (https://www.boringmoney.co.uk/isas-pensions/hargreaves-lansdown/) cap their costs (normally 0.45%) at £45 a year in an ISA, for all shares and ETFs. So someone with £100,000 could hold a multi-asset ETF and pay £45 for the admin, £11.95 for one share trade and (in the BlackRock case) £250 for the investments (i.e. 0.25% on £100,000). £306.95 a year for a diversified, managed portfolio of that size ain’t bad.
AJ Bell (https://www.boringmoney.co.uk/isas-pensions/aj-bell-youinvest/) charge a maximum of £30 a year for admin of shares/ETFs in an ISA. £9.95 for one trade. And then the investment fee too. In my above example, that would be £289.95.
Halifax Sharedealing (https://www.boringmoney.co.uk/isas-pensions/halifax-share-dealing/) charge £12.50 for admin of an ISA. £12.50 for a trade. So that would be £275.
Have a look at our fees and charges calculator (https://www.boringmoney.co.uk/calculator/) to work out what you might pay on a whole range of platforms. It is interesting for every investor to see what cost difference it makes to use ETFs (or indeed investment trusts) instead of funds. Look for those platforms which cap annual charges for shares.
Buyer beware – ESG ain’t perfect
ESG investments are a zillion more times more complex that you might think and hope. Many people are surprised that a so-called ESG product will often hold oil stocks, for example. The argument from many investment managers is that we achieve more change if we engage in slightly terse and bossy boardroom dialogue (laced with unspoken economic threats) with the likes of BP and Shell, rather than shout and withdraw and wave placards under their windows. I’m not going to get into that here – but just be aware that most ESG funds are what an uncouth person might call “less cr@p” funds rather than “perfect” funds. If you specifically want funds which exclude certain sectors and products, then search more specifically on what the industry calls ‘ethical funds (https://www.boringmoney.co.uk/learn/articles/esg-sustainable-ethical-and-ouch/)’.
You can read more on our Sustainable Savers (https://www.boringmoney.co.uk/sustainable-savers-old/) pages where you can read loads of content, see those platforms with helpful recommended fund lists in this space, and also check out independent research firm Morningstar’s preferred picks for a number of different filters – such as Low Carbon or No ‘Sin Stocks’. If you want an easy digital option, robo advisers Nutmeg (https://www.boringmoney.co.uk/isas-pensions/nutmeg/) and Wealthify’s (https://www.boringmoney.co.uk/isas-pensions/wealthify/) socially responsible and ethical portfolios are also worth a look.
And finally – a massive thank you
On Wednesday night, with a drumroll and some trepidation, we launched our crowdfund to those of you who had pre-registered interest. Amazingly, less than 2 hours later we had hit our target amount. The doors are still open for investment and when I last looked about 285 of you had helped us with our raise. Thank you for your engagement and support. If you’d like to learn more, please visit these pages to find out more (https://www.crowdcube.com/companies/boring-money/pitches/qYWaoZ)*. Before you invest anything there’s a short sign-up quiz on Crowdcube which checks that you understand the risks of investing in a start-up. These risks are of course very different to the big globally diversified portfolios I’ve mentioned here, and these sorts of investments should always be a ‘bit on the side’ and not the marriage. As it were…
Thank you all. It’s much appreciated. We look forward to bringing you a bigger and better service as we grow!
*Please be aware that an investment like this is risky and should be part of a diversified portfolio. Please make sure that you read all available information before investing. – THIS IS THE RISK WARNING 😊