Eggs in one basket – even free-range ones – is not a good strategy

The phrase “don’t put all your eggs in one basket” has been around since at least the 17th century when it appeared in ‘Don Quixote’ by Miguel de Cervantes (“It is the part of a wise man to keep himself today for tomorrow, and not venture all his eggs in one basket.”).

In investment terms, the phrase underlines perfectly the reason diversification is so important.

Why then are so many investment managers happy to provide single investment strategies to meet the increasing demand for sustainable investment solutions?

Our investment team has recently been researching the choices that are available for advisers looking for specific ESG options for their clients. They were surprised to find that much of what is on offer are single strategies (packaged into funds) and the majority have been running for very short periods, often less than two years.

That said, some of the strategies are excellent, as outlined by our UK Head of Investment, Nic Spicer, in a recent Citywire Wealth Manager article. He singles out the team behind the Liontrust Sustainable Future UK Growth fund as doing stellar work. Since 2017, assets in the fund have risen from £2.3bn to more than £9bn – making Liontrust a major player in the ESG space.

While funds such as this are doing well, opting to invest in any single strategy is still putting too many eggs in one basket. It doesn’t take into consideration the differing risk appetites of those clients who are keen to see their investment portfolios reflect a more sustainable approach across their investments.

A much better approach, certainly in terms of risk, is to invest in a diversified portfolio of multiple ESG funds, managed to align to different risk appetites.

PortfolioMetrix has been offering access to a range of ESG portfolios since 2017. Called ‘Sustainable World’ the portfolios provide access to some of the best ESG funds globally, including Liontrust Sustainable Future UK Growth.

The portfolios are built to match every variety of client risk appetites. They feature funds blended to achieve global diversification of different strategies with ESG considerations at the core, enabling us to create a sustainable portfolio range right across the efficient frontier.

By choosing risk-rated portfolios that have been constructed using the art of specialism, rather than single strategies, advisers have the comfort of knowing the work has been done to ensure their clients are getting access to the best funds that meet sustainable investment characteristics, are diversified across asset allocation and are badged to meet risk preferences.

They can also demonstrate to clients that they are keeping their eggs firmly out of any single basket. Let’s face it, the shells of free-range eggs are just as delicate as any others so caution should always remain a key word.