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Client Conversations: Align Wealth With Purpose

December 2017

A growing number of Americans now invest with their values in mind.

Client Conversations gives financial advisors an easy way to communicate with clients on topics influencing financial markets; it highlights common investor behaviors and offers ways to address the challenges investors face. Share this article with your clients, and remember to follow your firm's policies that govern sharing content with clients and prospects.


Can investing be about more than just performance? Those who aim to have a positive societal impact sure believe so. There’s a lot of long-term potential to do well by doing good.

 

Follow your conscience

Sustainable, responsible, and impact investing has been around for decades. It’s evolved from focusing on the avoidance of doing harm to the actual pursuit of good. Today, it comes in many forms and has just as many names. Essentially, they all describe the same thing: investments focused on companies incorporating social, environmental, or corporate governance into how they do business. The goal: limit their negative impact to the world while augmenting the positive one they can make to help fix its problems (FIGURE 1).

Figure 1 
Sustainable Investing Has Evolved

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Demand is growing

One out of every $5 under professional management in the United States today (about $9 trillion) is invested in solutions with responsible factors.1 Even more impressive is that more than one-quarter of all assets under management in Asia, Australia and New Zealand, Canada, Europe, and the United States can be found in sustainable investments.2

Another sign that it’s more than just a flavor of the month: Morningstar began ranking funds in 2016 based on the ESG scores of the underlying holdings. It’s called their sustainability rating. Visit morningstar.com for more information.

 

Big problems mean big opportunity 

True or false: You’re sacrificing financial returns by sustainably investing? False. That old notion doesn’t line up with reality anymore. Investors have done well as companies help address social and environmental problems in new and innovative ways (FIGURE 2). The world’s biggest problems can offer these companies the opportunity to increase earnings and give investors the chance to grow their returns in the years to come. 

 

Figure 2
Myth: Sustainable investing = sacrificing returns
The MSCI ACWI Sustainable Impact Index3 has outperformed the MSCI ACWI Index4 since its inception (Growth of $10,000: 11/30/15-9/30/17)
 

 

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Source: Morningstar, 10/17. Past performance is not indicative of future results. Indices are unmanaged and not available for direct investment.

 

Investing with companies that are doing good can also help lower investment volatility. Stocks with lower ESG scores have tended to see higher unpredictability than those with higher ESG scores.5 By doing good, these companies often can often sidestep pitfalls, such as earnings risk, price declines, and bankruptcies.

 

Profits for a purpose?

Interested in the idea of aligning your values with your investment strategy? Talk more with your financial advisor about your personal preferences. He or she has the tools that can help make sustainable investing analysis a part of your portfolio so you can help others and the planet—while potentially adding to your bottom line.

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Sources: “2016 U.S. Trust Insights on Wealth and Worth," 2016; "Sustainable Signals: The Individual Investor Perspective." Morgan Stanley Institute for Sustainable Investing, February 2015. Most recent data available.

Client Conversations gives financial advisors an easy way to communicate with clients on topics influencing financial markets; it highlights common investor behaviors and offers ways to address the challenges investors face. Share this article with your clients, and remember to follow your firm's policies that govern sharing content with clients and prospects.


1 ”Report on US Sustainable, Responsible and Impact Investing Trends,” US Sustainable Investment Forum (US SIF), 2016
2 “The 2016 Global Sustainable Investment Review," Global Sustainable Investment Alliance, 2017
3 MSCI ACWI Sustainable Impact Index is designed to identify listed companies whose core business addresses at least one of the world’s social and environmental challenges, as defined by the United Nations sustainable development goals. For illustrative purposes only and may not be the relevant benchmark for sustainable investing products offered by Hartford Funds. Index returns are not representative of a fund’s actual performance. Impact investing is one of several sustainable investment approaches. Benchmarks that reflect other sustainable investment approaches may have different results.
4 MSCI ACWI Index is designed to represent performance of the full opportunity set of large- and mid-cap stocks across developed and emerging markets, consisting of developed and emerging market country indices. The MSCI ACWI Index is the parent index of the MSCI ACWI Sustainable Impact Index. MSCI index performance is shown net of dividend withholding tax; prior to 3/1/17, it was gross of dividend withholding tax.
5 “ESG: Good companies make good stocks,” Bank of America Merrill Lynch, Global Research, 12/18/16

All investments are subject to risk, including the possible loss of principal. A portfolio of sustainable, ESG and/or impact investments may have higher or lower returns than a more diversified portfolio where decisions are based on other investment considerations. Because sustainable, ESG and impact criteria exclude some investments, investors may not be able to take advantage of some opportunities or market trends as investors that do not use such criteria.

This material is provided for educational purposes only.

This information does not take into account the specific tax and financial condition of any specific person. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. This material and/or its contents are current at the time of writing and are subject to change without notice. This material may not be copied, photocopied or duplicated in any form or distributed in whole or in part, for any purpose, without the express written consent of Hartford Funds.

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