Investing without regrets
INVESTMENT EXTRA
INVESTING to make big bucks and putting your money behind a company that might do some ‘good’ are often regarded as exact opposites.
So- called sin stocks, such as firms that sell booze, fags and guns, often far outperform any ‘green’ fund.
Statistics from the London Business School and Credit Suisse have shown just how rewarding investing in the sin or vice stocks can be, with an investment over 100 years returning 200 times more than the average market return.
But a London- based stock exchange is trying to show that backing firms that have a social or green benefit is not the preserve of sandal-wearing vegans.
Tomas Carruthers is the man behind the Social Stock Exchange (SSX). He worked on the idea for years and it was launched two years ago by Prime Minster David Cameron at the G8 Social Impact Investment Forum in London. It all sounds oh-so-worthy. But Cambridge graduate Carruthers is no evangelical environmentalist. He is an entrepreneur who has spotted a niche. He set up ESI (Electronic Share Information) – the first website to publish realtime and delayed share information – and following that he founded stockbroker Interactive Investor.
The SSX trades on the junior exchange ICAP Securities & Derivatives Exchange. Carruthers has welcomed 14 companies – including sustainable building materials firm Accsys Technologies, run by former deputy prime minister Nick Clegg’s elder brother, Paul – and there are 30 others in the pipeline.
Carruthers says ‘impact invest- ing’ – something between philanthropy and investing purely for a return – is big business in the US and is growing over here.
Impact investing is so large in the US that JP Morgan and the Rockefeller Foundation estimate it will be valued at a trillion dollars by 2020. Companies which want to join the SSX have to pass its strict criteria and submit an annual impact report prepared by an independent social impact specialist.
Many of the firms on the exchange have been listed on AIM and then join the exchange, but it has just won its biggest boost yet.
Ben Goldsmith yesterday listed Menhaden Capital on the exchange and London’s main market, having raised £80m.
The fund will invest in business opportunities that specialise in saving resources such as energy or water or cutting waste. Backers include the Mittal family, and Sir Stelios Haji-Ioannou. Former Kingfisher chief executive Sir Ian Cheshire leads its board.
Goldsmith says: ‘ The Social Stock Exchange is a helpful way to direct investors to these companies in one place. It gives access to companies with financial strength that are also making an environmental or social impact.’
Carruthers wants the exchange to be open to all, not just the rich. He adds: ‘Ordinary private investors can buy shares through their brokers. We have made it easy for the normal person.’ His old shop Interactive Investor sells shares.
Mike McCudden, head of derivatives at Interactive Investor, says: ‘Consumers are more interested in what they are actually investing in than ever before. There is demand. Menhaden floating proves the SSX works.’
The market cap of the companies on the exchange has reached around £1.3bn but it has a long way to go to compare with the £2.3trillion of the FTSE All Share.
Although Carruthers’ idea is less Tom and Barbara in The Good Life TV show and more City suit, the exchange is still in its infancy.
The social impact of a company doesn’t make it a great investment and the regulation on AIM – 20 years old this year – has shown that people must make careful investment decisions.
Total returns from AIM over 19 and a half years are down more than 15pc.
The rise of crowdfunding has filled the gap for some who have wanted to invest in projects they think are worthy causes, but what happens when an investor wants to cash out? As McCudden explains: ‘With the SSX people can sell on a regulated market.’
Investors will make up their own minds but the SSX certainly seems to be spreading its wings.