Exchange-traded funds (ETFs) provided a “great way” for New Zealanders to access impact investing given the dearth of home-grown options, the head of an industry group told a conference last week.
David Wood, deputy chair of the recently-formed NZ Impact Investing Network (IIN), cited a number of socially-themed ETFs during a session at last week’s Responsible Investment Association of Australasia (RIAA) conference in Auckland.
For example, Wood said a new US-based ETF backing minority rights provided an interesting model for impact investing.
Launched in July this year as a collaboration between US lobby group the National Association for the Advancement of Colored People (NAACP) and Dallas-based manager Impact Shares, the new ETF tracks the Morningstar Minority Empowerment Index.
The Impact Shares NAACP Minority Empowerment ETF screens stocks along a number of issues such as board diversity, corporate discrimination policies, supply chain management and community engagement. Furthermore, Impact Shares – the first ETF provider structured as a charity – promises to feed any profits back to the relevant non-profit partners.
In a statement at launch, Impact Shares said: “Assets managed with ESG [environmental, social and governance] strategies now account for more than one out of every six dollars under professional management in the United States.”
According to a US fund researcher, over 300 ETFs currently fall under the ‘socially responsible’ header covering a wide range of asset classes and sectors.
But while ETFs might offer a hands-off way for investors to dabble in the impact world, Wood said the traditional route – of investing directly into targeted projects – was hampered in NZ by the lack of deals and awareness.
IIN formed late last year to promote the impact investing message and foster deals. Wood also chairs the Impact Enterprise Fund – the country’s first “domestic-focused” impact investment vehicle. The Impact Enterprise Fund – a joint venture between the Ākina Foundation, New Ground Capital and Impact Ventures – closed its first capital-raising round off in February after attracting just $8 million.
However, Alastair Rhodes, chief of the Tauranga-based BayTrust, told the RIAA crowd that community-based funds could use their “balance sheets” to drive positive change.
Rhodes said the $200 million plus BayTrust had allocated 10 per cent of its portfolio to impact investments – primarily social housing – drawn in equal measure from the fund’s low-risk and growth assets. He said “social loans” delivered a low yield of about 3 per cent compared to the BayTrust broader portfolio return of 6-7 per cent.
“But on a risk-adjusted basis the gap is more like 3 per cent compared to 3.8 per cent,” Rhodes said, with the ‘impact’ side of the equation making up the difference.
He said BayTrust takes a “3D” approach to the portfolio covering risk, return and “the social impact we are trying to achieve”.
BayTrust hired Cambridge Associates as its new investment adviser earlier this year.