Shape the things to come

Portfolio Adviser IT Guide, 16 December 2020

James Carthew, Director QuotedData

Shareholders in investment companies have a significant edge over their open-ended counterparts when it comes to seeking out ESG-oriented investments

The investment world has a big role to play in shaping the future of the planet for the benefit of us all. None of us should be passive investors in that regard – even if we invest using passive funds – yet there are many different ways of approaching these issues.

Few individual investors have the clout to make their views heard and achieve change. Collectively, though, investors in open-ended funds and trusts have strength in numbers. Investors in open-ended funds and exchange-traded funds have no direct influence over investment strategy – other than to vote with their feet – but investors in investment companies have a vote and a voice. This gives shareholders in investment companies a significant edge when seeking out ESG-positive investments.

Industry body the Association of Investment Companies publishes its own code of corporate governance, which seeks to provide boards of investment companies with a framework of best practice. The code builds upon the UK Code published by the Financial Reporting Council and stresses the importance of gathering shareholders’ views. As shareholders in investment companies, we should not hesitate to convey our strongly held opinions on these issues by writing to boards and, once Covid-19 permits, attending annual general meetings.

One of the most important functions of an investment trust board is managing the relationship between the fund and its external service providers. The board’s ability to replace poorly performing managers, adapt investment strategies to reflect a changing world and keep a tight lid on costs are all contributing factors behind the long-term success of investment companies relative to open-ended funds and benchmark indices.

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