MAINSTREET ADVISORS SOCIALLY RESPONSIBLE INVESTING

Transcription

1 MAINSTREET ADVISORS SOCIALLY RESPONSIBLE INVESTING

2 WHETHER YOU ARE STANDING IN LINE READING MAGAZINES AT THE CHECKOUT IN THE LOCAL GROCERY, WATCHING THE NIGHTLY NEWS, OR READING THE NEWSPAPER THERE IS A GROWING TREND TO LIVE A MORE SOCIALLY RESPONSIBLE LIFESTYLE.

3 WHAT IS SOCIALLY RESPONSIBLE INVESTING? SOCIALLY RESPONSIBLE INVESTING (SRI) IS AN INVESTMENT STRATEGY THAT INTEGRATES SOCIAL OR ENVIRONMENTAL CRITERIA INTO FINANCIAL ANALYSIS. SRI is gaining momentum with many individual and institutional investors who seek to: - Align their investment portfolio with their personal values by limiting their investment universe to those vehicles that meet certain environmental, social, governance, or community investment criteria. - Recognize that corporate responsibility and societal concerns are valid parts of investment decisions. - Consider both their financial needs as well as an investment s impact on society. CANDIDATES FOR SRI Investor interest in responsible investment alternatives has been documented by several recent studies which found that two-thirds of investors say they want their investments to be aligned with their values. In addition, 70% of investors under the age of 35 are likely to invest in SRI. 1 Another study revealed 65% of women and 42% of men view social, political, and environmental factors as important in evaluating investments. 2 As investors increasingly embrace the idea of investing responsibly, investment professionals must offer opportunities for their clients to execute strategies that fit client investment objectives. As SRI gains momentum, some studies suggest that investors interest in SRI exceeds that of their financial professionals. 3 WE BELIEVE INVESTORS DO NOT HAVE TO COMPROMISE THEIR FINANCIAL GOALS TO INCLUDE A FOCUS ON SOCIAL RESPONSIBILITY IN THEIR PORTFOLIO. 1 Calvert Brand Health Report, Northstar, U.S. Trust Insights on Wealth and Worth, Key Findings, March Calvert Climate Change/Alternative Energy Survey, May 2007, as cited in The Coming of Age of Socially Responsible Investing, Financial Planning, August 1, MAINSTREET ADVISORS SOCIALLY RESPONSIBLE INVESTING 3

4 WHAT IS SOCIALLY RESPONSIBLE INVESTING? Not only are we living more socially responsible lifestyles, we are encouraging corporations both domestically and abroad to improve their practices on environmental, social, and governance (ESG) issues. According to the 2014 edition of the Report on U.S. Sustainable, Responsible and Impact Investing Trends published by the nonprofit Social Investment Forum (US SIF), Socially responsible investing (SRI) is thriving in the United States, growing at a faster pace than the broader universe of all investment assets under professional management. Socially responsible investing assets expanded from $3.74 trillion at the start of 2012 to $6.57 trillion at the start of 2014, an increase of 76 percent. These assets now account for more than one out of every six dollars under professional management in the United States. The US SIF identified $6.20 trillion in U.S.-domiciled assets that apply various environmental, social, and governance criteria in their investment analysis and portfolio selection as well as $1.72 trillion held by institutional investors or money managers who filed or co-filed shareholder resolutions on ESG issues at publicly traded companies from 2012 to The overall total of SRI assets was $6.57 trillion after eliminating double counting. Growth has been fueled by increased market penetration of SRI products, the development of new SRI products, and the fuller integration of ESG criteria by numerous large asset managers. SUSTAINABLE AND RESPONSIBLE INVESTING IN THE UNITED STATES FROM , IN BILLIONS $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $ ESG INCORPORATION ONLY SHAREHOLDER RESOLUTIONS ONLY OVERLAPPING STRATEGIES Source: US SIF Foundation 4 MAINSTREET ADVISORS SOCIALLY RESPONSIBLE INVESTING

5 MAINTAINING DIVERSIFICATION WITH SRI Contrary to popular belief, a fully diversified portfolio can now be constructed with SRI investments. Financial innovation has led to further opportunities to invest in SRI. These opportunities come through several investment vehicles including individual securities, mutual funds or exchange traded funds (ETFs). SRI EXCLUSIONS MainStreet Advisors offers solutions to assist your clients in building investment portfolios that screen for environmental, social, or governance exclusions. Among these exclusions are: - Gambling - Adult Entertainment - Tobacco - Animal Welfare - Firearms - Stem Cell Research - Military - Nuclear Power - Human Rights - Contraceptives ASSET CLASSES AVAILABLE TO SRI INVESTORS - LARGE CAP EQUITY - MID CAP EQUITY - SMALL CAP EQUITY - FOREIGN EQUITY - TIPS - ALTERNATIVE INVESTMENTS - SHORT/INTERMEDIATE TERM BONDS - LONG TERM BONDS - HIGH YIELD MAINSTREET ADVISORS SOCIALLY RESPONSIBLE INVESTING 5

6 UNDERSTANDING CLIENT GOALS EACH CLIENT HAS UNIQUE INVESTMENT CONSIDERATIONS AND OUR FIRST STEP IS UNDERSTANDING THEM. We begin individual portfolio reviews by analyzing each client s investment questionnaire. The investment questionnaire keeps the portfolio manager in tune with the client s investment goals and risk tolerance; these goals will provide direction for the financial plan and help us create an investment portfolio that accurately fits their needs. It is also important to routinely review and assess the client s objectives and to shift investment strategies as their needs, lifestyle situations and goals evolve. This assessment can include an evaluation of: - Return Expectation - Capital Preservation - Risk Tolerance - Tax Considerations - Time Horizon - Laws and Regulations - Income Requirements - Unique Circumstances - Individual SRI Preferences THE INVESTMENT QUESTIONNAIRE KEEPS THE PORTFOLIO MANAGER IN TUNE WITH THE CLIENT S SRI INVESTMENT GOALS. 6 MAINSTREET ADVISORS SOCIALLY RESPONSIBLE INVESTING

7 SOCIALLY RESPONSIBLE INVESTING SOLUTIONS MAINSTREET ADVISORS HAS DEVELOPED SRI SOLUTIONS THAT ALLOW YOU TO STREAMLINE THE INVESTMENT PROCESS. DEPENDING ON EACH CLIENT S GOALS, MAINSTREET ADVISORS HAS A PLATFORM TO HELP MEET THOSE GOALS. FUND ALLOCATION PORTFOLIOS (FAP) Our FAP portfolios are constructed using a combination of mutual funds and ETFs. SEPARATE ACCOUNT MANAGEMENT (SAM) SAM is our most customized solution to manage client assets. The SAM platform provides clients with access to a customized large cap strategy, complemented with exposure to other equity, fixed income, and alternative investment strategies. 011 CHOOSE ASSET ALLOCATION UNIVERSE MAINSTREET ADVISORS EMPLOYS FIVE STEPS TO ITS INVESTMENT MANAGEMENT PROCESS. 5 MONITOR PORTFOLIO PORTFOLIO MANAGEMENT PROCESS 2 DEVELOP STRATEGIC/TACTICAL ASSET ALLOCATION TARGETS 1. Choose asset allocation universe 2. Develop strategic/tactical asset allocation targets 3. Identify investment vehicles 4. Build portfolio 5. Monitor portfolio 4 BUILD PORTFOLIO 3 IDENTIFY INVESTMENT VEHICLES MAINSTREET ADVISORS SOCIALLY RESPONSIBLE INVESTING 7

8 SOCIALLY RESPONSIBLE INVESTING FUND ALLOCATION PORTFOLIO MODEL Our SRI Fund Allocation Portfolio (FAP) is constructed using a combination of mutual funds and ETFs. Broad asset class diversification is obtained through fixed income, equities, and alternative investments. Investments for socially conscious investors are preferred within this portfolio, but may include securities that do not fit typical SRI screens due to lack of availability in some asset classes. SRI FAP portfolios are available for all investment objectives. MUTUAL FUND SELECTION In constructing the SRI FAP portfolio, MainStreet Advisors conducts a search to identify socially responsible mutual funds that meet both the quantitative and qualitative investment criteria listed below and are available for investment. - Minimum Size: $100 million in assets under management - Track Record: Fund has a minimum 3-year history - Minimum Morningstar Rating: Three star overall rating - Expense Ratio: Below the Morningstar category average QUANTITATIVE REVIEW Once a fund passes this initial screen, further quantitative research is performed, focusing on the fund s historical performance and risk characteristics. Preference is given to a mutual fund that is consistently in the top third of its Morningstar category. However, performance is often driven by the level of risk taken by a fund, so we seek to identify those funds that have attractive risk-adjusted returns relative to their peers. We also look at a wide variety of quantitative characteristics in comparing fund candidates. These include but are not limited to: - Alpha - Sharpe Ratio - Beta - Capture Ratio - Standard Deviation - Tracking Error - Information Ratio - Downside Deviation QUALITATIVE REVIEW In an attempt to mitigate the behavioral bias in manager selection, we include a qualitative review process that focuses on characteristics of the investment manager that are necessary foundations of a successful investment strategy. We investigate the quality and tenure of the fund s investment team, consistency of its investment process, its idea generation process, portfolio construction strategy, liquidity constraints, existing product offerings, and business management factors. These factors provide an understanding of the firm s ability to generate excess return in the future. After our quantitative and qualitative analysis, we continue to monitor funds through our ongoing analysis and fund due diligence reporting. 8 MAINSTREET ADVISORS SOCIALLY RESPONSIBLE INVESTING

9 SOCIALLY RESPONSIBLE INVESTING SEPARATE ACCOUNT MANAGEMENT MODEL MAINSTREET ADVISORS USES THE SAME DISCIPLINED INVESTMENT APPROACH IN MANAGING ITS SOCIALLY RESPONSIBLE INVESTING SEPARATELY MANAGED ACCOUNT PORTFOLIO AS IT DOES IN ALL ITS SAM MODELS. The screening process begins with identifying the components of the MSCI KLD 400 Social Index. The MSCI KLD 400 Social Index is a capitalization weighted index of 400 U.S. securities that provides exposure to companies with outstanding Environmental, Social, and Governance (ESG) ratings and excludes companies whose products may conflict with SRI goals and philosophy. Companies within the MSCI KLD 400 Social Index have positive social and environmental records based on the following issues: community relations, diversity, employee relations, human rights, product quality and safety, environment, and corporate governance. Companies are evaluated in the context of their industry and sector as well as in relation to the broader market. The index excludes companies involved in alcohol, gambling, tobacco, civilian firearms, nuclear power, military weapons, GMOs, and adult entertainment. With the 400 stocks in the index as the universe, MainStreet Advisors builds a portfolio of companies that are dominant market leaders trading below their fair value according to Morningstar research. The portfolio contains mid-to-large sized companies that have average risk and provide moderate growth. The portfolio has the objective of a competitive return with the MSCI KLD 400 Social Index. Securities are reviewed on an ongoing basis. Reasons for selling a particular stock include, but are not limited to, valuation, change in fundamental outlook, or failure to meet the MSCI KLD universe standards. MAINSTREET ADVISORS SOCIALLY RESPONSIBLE INVESTING 9

10 SOCIALLY RESPONSIBLE INVESTING TOOLS MAINSTREET ADVISORS MAINTAINS SRI TOOLS TO COMMUNICATE OUR RECOMMENDATIONS. PORTFOLIO REPORT MODEL PORTFOLIOS FUND REPORTS RESEARCH WIRES APPROVED LIST Summarizes portfolio statistics, style allocation, performance, and composition and provides information necessary to stay on top of a strategy. Offer analysis of portfolio statistics, style allocation, performance, and composition to provide information necessary to stay on top of a strategy. Comprehensive details on each fund including fund strategy, fundamentals, performance, portfolio composition, estimates for maximum short- and long-term gains, and news. Periodic communications designed to inform clients of changes in our investment opinions. Timely information on each fund s performance in a concise report. 10 MAINSTREET ADVISORS SOCIALLY RESPONSIBLE INVESTING

11 EVERY INVESTOR HAS UNIQUE CIRCUMSTANCES THAT PLAY AN IMPORTANT ROLE IN THE DEVELOPMENT OF A CUSTOM TAILORED PORTFOLIO. AT MAINSTREET ADVISORS OUR INVESTMENT TEAM USES A STRUCTURED PROCESS TO IDENTIFY OPPORTUNITIES, ANALYTICAL SKILLS TO BUILD EFFICIENT PORTFOLIOS, AND AN ACTIVE MONITORING SYSTEM TO HELP KEEP PORTFOLIOS IN LINE WITH THEIR OBJECTIVES. At MainStreet Advisors you can expect: - Experienced Investment Professionals - Outstanding Client Service - Effective Communication - Disciplined Investment Process - In-Depth Investment Research - Professional Marketing Support

12 The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. This presentation is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and makes no implied or express recommendations concerning the manner in which any client s account should or would be handled, as appropriate investment strategies depend upon the client s investment objectives. The portfolio risk management process and the process of building efficient portfolios includes an effort to monitor and manage risk, but should not be confused with and does not imply low or no risk. Traditional and Efficient Portfolio Statistics include various indices that are unmanaged and are a common measure of performance of their respective asset classes. The indices are not available for direct investment. Past performance is not indicative of future results, which may vary. The value of investments and the income derived from investments can go down as well as up. Future returns are not guaranteed, and a loss of principal may occur. Investing for short periods may make losses more likely. The opinions expressed are those of MainStreet Advisors. This information is subject to change at any time, based on market and other conditions. The information presented has been obtained with care from sources believed to be reliable, but is not guaranteed. Any investments purchased or sold are not deposit accounts and are not endorsed by or insured by the Federal Deposit Insurance Corporation (FDIC), are not obligations of the Bank, are not guaranteed by the Bank or any other entity and involve investment risk, including possible loss of principal. MainStreet Advisors and Bank are independently owned and operated. MainStreet Advisors Form ADV Part II is available upon request. BRSRI001_ MAINSTREET ADVISORS 120 N LASALLE, 33RD FLR CHICAGO, IL MAINSTREETADV.COM