Magazine

Creating Ellevest Impact Portfolios as a "Win-Win"

By Sylvia Kwan

At Ellevest, our investment portfolios are specifically designed to help you reach your financial goals. And with the introduction of Ellevest Impact Portfolios, we can help you reach another goal you’ve shared with us: Not only investing to reach your goals, but at the same time advancing women — and, de facto, the world economy.

Today, too many conversations about “impact investing” are caught up in the idea that there must be a tradeoff between doing good socially and seeking financial return. There’s an assumption that investors have to give up the opportunity to earn competitive financial returns for their investments to have an impact. At Ellevest, we believe differently.

You read that right: Adding in ‘impact investing’ factors may help investors uncover risks.

At Ellevest, we think an investing strategy that combines robust investment principles with investments designed to advance women may offer financial returns and social returns. And as a fiduciary, we continue to focus on the financial factors that will serve the best interests of all of our clients.

How Ellevest Impact Portfolios Can Reduce Risk

We focus on reducing risk by offering investment portfolios with well-diversified asset classes — and now, with Ellevest Impact Portfolios, we believe we can also reduce risk through investing in companies with high environmental, social, and governance (ESG) and diversity standards.

You read that right: We believe that adding in “impact investing” factors may help investors reduce risks. For example:

  • A company with poor social practices — say, unfair personnel policies — is more likely to see low morale and high employee turnover. That’s not only costly, but it exposes a company to competitive threats and reputational risk.

  • A company with poor environmental practices is at risk for financial loss, damage to its reputation, and disruption of its business.

  • And firms with poor governance lie exposed to corruption and distrust — which can lead to the loss of customers and deteriorating profits.

Meanwhile, investing in companies with greater diversity in leadership may also reduce business and investment risk. Some evidence for this:

How Ellevest Impact Portfolios Can Provide Competitive Returns

Here’s another thing we believe: If an investment doesn’t meet our fiduciary criteria, and doesn’t offer you competitive market returns, it simply does not belong in your portfolio.

That said, finding impact investments that meet our criteria and have the impact we’re looking for isn’t easy. To uncover them takes time, boots-on-the-ground research, and persistence to find fund managers with the relevant experience, skills, and passion.

That’s why we add in a mix of impact and core (non-impact) investments to our Ellevest Impact Portfolios. You’ve heard us say it before: We strongly believe that well-diversified portfolios across different types of investments, or asset classes, is critical to effective investing. And right now, for some smaller asset classes — like small-cap companies and high-yield bonds — we haven't found impact investments that meet our criteria.

In the future, we hope to be able to offer a portfolio that is 100% impact; but we haven’t yet found one that has a well-diversified mix that meets our standards. We’re going to keep putting those boots on the ground, and update the Ellevest Impact Portfolios when we find appropriate investments to add to the mix.

A Note on Fees

Today, investors have a wide choice of low-cost ETFs designed to offer market return expectation. Most of these funds use readily available data to identify the companies that should be included in the fund and to manage the fund on an ongoing basis.

We carefully select funds for our Ellevest Impact Portfolios that balance our preference for impact with the costs. The average fund fee for our Ellevest Impact Portfolios ranges from 0.16% to 0.23%, compared to 0.06% to 0.16% for our core portfolios. (The fund fees are higher in Ellevest Impact Portfolios because generally it takes more time to do the work that makes an impact — things like researching which companies have more women in leadership positions, and which meet certain ESG standards, and constantly monitoring holdings to make sure those standards stay high.)

It’s central to the Ellevest mission to be at the forefront of investing for the opportunity to earn competitive returns and to help drive positive impact by advancing women. This new and powerful way to invest — by women, for women, in women — benefits you as well as others.

Disclosures

© 2018 Ellevest, Inc. All Rights Reserved.

Information was obtained from third party sources, which we believe to be reliable but not guaranteed for accuracy or completeness. While past studies of SRI or impact investments demonstrate investment return, there is no guarantee that the characteristics of these investments that led to the achievement of market returns with lower risk will lead to similar results in the future, or that the Ellevest Impact Portfolios will have the same factors that led to the results from the studies.

Forecasts or projections of investment outcomes are estimates only, based upon numerous assumptions about future capital markets returns and economic factors. As estimates, they are imprecise and hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.

The information provided does not take into account the specific objectives, financial situation or particular needs of any specific person.

Diversification does not ensure a profit or protect against a loss in a declining market. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Investing entails risk including the possible loss of principal and there is no assurance that the investment will provide positive performance over any period of time.

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Sylvia Kwan

Sylvia is the Chief Investment Officer of Ellevest. She researches and oversees Ellevest portfolios, and develops the algorithms behind Ellevest’s investment recommendations.