The search for ethical investments is on, as searches for more ethical ways to invest rose by a third this year.
The data compiled by investment bank Arbuthnot Banking Group (AIM:ARBB), which showed a 32.6% increase in internet searches for ‘ethical investment’ for the year to date compared to the equivalent January to June period last year, suggests investors are increasingly conscious to put their money away in non-contentious and ethical investments.
This surge in the number of potential investors exploring ethical ways of investing could be a response to the maelstroms faced by listed companies such as Tesla Inc (NASDAQ:TSLA), which was booted out of the S&P500 environmental, social and governance index this year following accusations of racism at its Fremont factory.
Retail investors are also exploring alternative forms of investment such as private equity and seem less interested in real estate investments, if Google, Bing and other search engine data can be a guide of trends.
This coincides with rising but turbulent house prices in the UK. According to the Halifax index, house prices rose for the eleventh consecutive month in May by 1%, with annual growth slowing overall.
Data from investment bank Arbuthnot Latham shows that searches for real estate investments fell by more than a fifth, 23.36%, this year.
Searches for private equity investments meanwhile increased by 14.75%, as the asset class attempts to spend an almost 2 trillion-dollar war chest of capital collected from institutional investors such as pension funds where it can make a profit.
In total, Arbuthnot registered 35,000 internet searches among potential retail investors for different types of ‘alternative investments’ this year. Searches for so-called alternatives are up by a massive 88% year over year, the bank said.
After a couple of years of lower travel overheads due to the Covid-19 pandemic, and with interest rates now rising, which could in turn increase savings put away during lockdowns, searches for ‘family investments’ grew by 4.26%.
Arbuthnot explained that in the bank’s view, people are seeking to make financially “sound” decisions and stretch their pounds a little further while struggling to meet the rising price of everyday goods.
“A great way to do so is to take a look into your investments or if you are not yet investing look at where you can start to,” the bank said.
The typical investor portfolio usually includes a majority of stock investments, and the rest of money in bonds that carry a fixed rate of interest, translating to a steady return for investors.
The standard medium-risk approach involved betting 60% of your capital in stocks and 40% in bonds.
However, Arbuthnot said that investors in today’s environment are increasingly looking to diversify their investment portfolios.
Alternative investments include anything that does not constitute stocks, bonds, cash or real estate.
Examples include private equity, where investment firms raise money from investors and use it to buy private companies or invest growth capital into businesses in exchange for a percentage stake in the company.
This type of equity investment is not easily available to many retail investors, with the exception of high net-worth individuals and those who invest through an asset manager, with online asset management platforms becoming increasingly available.
This is except for where private-equity firms are listed on the stock market, through commitments to pension pots that invest in the asset class and certain fund structures such as venture capital trusts.
Hedge funds also invest the money of high net-worth individuals they have a relationship with, often going against the grain and investing on a short-term basis against a market trend or company where they think they can predict future losses and choose to invest on an inverted basis or expect market conditions to expire quickly.
For example, Bridgewater, one of the world’s largest hedge funds, has a history of shorting a swathe of European companies during periods of slowdown or downturns.
Investors may also choose to invest in commodities, betting on the price of oil, natural gas, metals and agricultural goods in a shifting market of supply and demand, rather than investing in company stocks.
Collectables bought on the open market such as art and valuable commercial items are considered to be another form of alternative investment.
Arbuthnot warns that many types of alternatives are not regulated by the UK regulator the Financial Conduct Authority. This means that investors usually have to waive rights to protection under the Financial Services Compensation Scheme.
Whereas the aggregate value of company shares and indices can be easily accessed through regulated public market data, alternative investment returns are published less frequently by fund managers.
Such investments are often considered illiquid, with cash returns less readily available to those that invest, because they tend to be locked up for long periods. Investors in funds often need to give a year’s notice if they want to exit their investment.