Combining portfolio models

The debate over whether investors should choose one EQ strategy over another is ultimately misguided, because they can benefit greatly by combining approaches.

FacebooktwitterlinkedinmailFacebooktwitterlinkedinmail   by Damien Lardoux, 5th September 2023

When we launched the EQ Positive Impact Portfolios in 2012, the investment universe of responsible funds was limited.  On one side stood ethical funds, focused on exclusions. On the other, a small number of sustainable funds focused on screening companies positively based on their practices and products or services. So, the EQ Positive Impact Portfolios, with their ambitious sustainability screens, were seen by advisers as a go-to proposition for clients willing to invest sustainably.

Sustainable investing has evolved

Over the past decade, EQ Investors (EQ) have been a key advocate for sustainable investing, pushing for innovation and product improvements. We are pleased to say that the landscape has now been completely transformed. The availability of sustainable funds has significantly increased, as has the variety of sustainability goals they pursue. Simultaneously, client interest in sustainability has grown because of the greater awareness of these issues in our day-to-day lives.

With this evolving landscape, it became clear to us that there is no one-size-fits-all solution. For some advisers and their clients, limiting investment cost is paramount.  We launched our Future Leaders portfolios over three years ago to cater for these investors. For others, fighting climate change and supporting the transition to net zero were their main priorities and we launched the EQ Climate Action Portfolios eighteen months ago.

And so, has suitability

Unsurprisingly, the regulator also now requires that advisers enquire about their clients’ social and environmental preferences and can show that product recommendations match client needs. To support our advisers, last year, we produced a side-by-side portfolio comparison guide highlighting the key differences between these strategies. More recently, we’ve launched a sustainability questionnaire which helps financial advisers to explore a client’s personal values and acts as a starting point for a detailed conversation around sustainability.

What’s unique about the questionnaire is that it has been designed to align a client’s sustainability preferences and intentions with the core aims of EQ’s range of portfolios, as well as ‘traditional’ alternatives.

Combining different sustainability approaches

Whilst for some clients the outcome from the questionnaire might be clear, for others it is possible that a couple of strategies seem to be of equal interest. There are then two options at this stage. The first is to explain the differences between each and agree on the right strategy for your client.  The second is to recommend both strategies with two different sustainability aims.

There are many other reasons why blending could be of interest. Cost as previously mentioned. Combining the EQ Positive Impact or Climate Action Portfolios with the EQ Future Leaders Portfolios, investing only in sustainable, low-cost tracker funds, will help reduce your clients’ overall investment costs.

Managing short-term performance divergence vs traditional portfolios and peer groups or reducing sequencing risk is another reason. For example, the EQ Positive Impact Portfolios have a strong long-term track record but in the short-term, such as in 2020 or in 2022, performance vs traditionally managed portfolios can diverge materially due to the portfolio’s biases to innovative medium size companies with strong growth profiles. As the EQ Future Leaders and Climate Action Portfolios invest in larger size companies with a wider investment universe, they tend to track the performance of traditionally managed portfolios more closely. So, combining them with the EQ Positive Impact Portfolios can reduce the risk of short-term performance divergence if this is an important decision factor for your clients.

We often get approached by advisers to discuss specific client preferences and values and how to best match them with their investments. Please do not hesitate to get in touch with us, we would be delighted to provide you with further thoughts and insights.


Please remember, this article is provided for information purposes only. Investment involves risk. Past performance is not a guarantee or indication of future results. Investment return and the principal value of an investment may go up or down and may result in the loss of the amount originally invested.  All investors should seek professional advice prior to any investment decision, in order to determine the risks associated with the investment and its suitability.

Contact Damien

    Damien Lardoux

    Head of Impact Investing at EQ Investors, Damien is Portfolio Manager for our Positive Impact and Future Leaders strategies, and co-Chair of our Fund Selection Committee. He is a CFA charter holder, a member of the CFA Institute and CFA UK society.

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