Is it time to detox your investments?

When it comes to our investment portfolios, taking the first step and choosing a suite of funds is often the hardest decision. But once that’s done it’s time to sit back, relax and let them do their thing, right? Wrong. Like all things in life that need to grow, our investment portfolios need nurturing – and sometimes weeding.

Investing more sustainably

If you are looking to make your portfolio healthier and adopt better habits this year, you could look at how ‘ESG’-friendly it is. The environment (E), social issues (S) and corporate governance (G) are all big topics in other areas of our lives, so why not our investments too?

Do you mind if a fund is investing in oil companies or weapons manufacturers, or would you prefer a fund that is investing in renewable energy or social housing?

If it’s the latter, the good news is that there are now plenty of excellent funds available that fit the bill, whether you care most passionately about climate change or social equality.

Some funds look to encompass all areas of responsible investing. For example, the team behind EdenTree UK Responsible & Sustainable UK Equity covers all manner of ESG issues from slave labour through to breast milk substitutes and conflict minerals, offering even the most discerning investor good options. And the team behind ASI UK Ethical Equity regularly surveys its own investors to make sure the fund is keeping up-to-date with changing investor requirements.

Those looking for options that will help combat climate change could look at Ninety One Global Environment, which is specifically targeting companies that are helping to decarbonise the world, or Artemis Positive Future, which is looking for those firms making a material positive impact on the world through either environmental or social improvements.

LF Montanaro Better World has a more thematic approach, investing in companies that are involved in environmental protection, the green economy, healthcare, innovative technologies, nutrition, and well-being, while BMO Responsible Global Equity not only avoids certain sectors but also prides itself on its engagement – investing in companies where there are problems that can be resolved.

And if equities are too risky for you there are also bond options such as Liontrust Monthly Income Bond or Rathbone Ethical Bond.

Research all Elite Rated ESG funds

Another way to detox your portfolio is to get rid of the funds that are no longer doing what we need them to do. This could be for a number of reasons, some of which are outlined below.

Five reasons to ditch a fund

  1. If a fund has underperformed its peer group, can the underperformance be explained, or do you have a bad egg? Is it a style issue or a manager issue? If it’s the latter, maybe it’s time to look at other options. We tend to give managers a couple of years to turn things around – after all we all have bad patches. But if the fund has underperformed for 2-3 years it’s time to take a long, hard look.
  2. If a fund has significantly increased in value (or the asset class in which it invests has) you might not want to ditch it completely, but you might want to take some profits or rebalance your portfolio. For example, the US stock market was up more than 22% in 2021 – is it time to take some profits and recycle them in something like emerging market equities which didn’t do so well? Or do you have a lot of ‘growth’ funds in your portfolio and it’s time to add a little ‘value’?
  3. Fund fees may also be eating away at your returns and there may be better and cheaper options available. Just be careful not to make decisions on cost alone – take a look at performance after fees to see if a slightly more expensive fund may be worth paying for.
  4. If the fund gets too big you might consider selling. This is especially the case if a manager runs a smaller companies fund. If they take on too many assets, they have to either take bigger bets in companies by owning larger percentages of the firm, or they have to start investing in bigger companies instead. If these changes have to be made, a fund is moving away from its process, and this could impact future returns.
  5. Finally, have your goals or your tolerance for risk taking changed? An ‘all equity’ portfolio may have been suitable for your 30s and 40s but if you are looking to retire in a few years, it may be time to take some risk out and create a more diversified portfolio.
This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.