‘Can sustainable investments net me a £300k flat?

Student with £20k in savings has a plan to get on the property ladder, but there is a catch, writes James Fitzgerald

University student Sophie Fryer is set to graduate next year, and is already looking at ways to invest her way on to the property ladder in London – but she wants to achieve this solely through sustainable investments.

When Ms Fryer, 21, leaves York University she wants to get a graduate job in the capital – hopefully paying about £ 38,000 – as a consultant in the finance or sustainability sector.

As such, she has an interest in investing – but has specified she only wants to put her money in funds that are in the ethical, sustainable, and governance (ESG) space.

Complicating matters is that Ms Fryer has limited experience in investing in the stock market, despite her passion, and wants to know the best ways to do it.

Her investment aim is to buy a property, preferably a one-bedroom flat, for between £200,000 and £300,000 within a decade. A difficult task, especially with property prices in the capital being particularly high.

Ms Fryer has built up an impressive savings haul in recent years through studious saving, but she also wants to travel abroad next year, which will eat into her cash. She has £ 10,000 in a fixed-rate cash Isa with Virgin Money that is paying 4.25pc interest a year, and £10,000 in a savings account with Starling Bank, with a rate of 3pc.

Elsewhere, there is a private pension worth £2,000, which Ms Fryer plans to contribute to when she finishes her time at university and enters the workforce.

“I want to build up a diversified portfolio and look at different funds instead of selective stocks. Rather than Isas and current accounts, I want to branch out with my investments, but I don’t feel I have the knowledge at the moment to do that,” she said.

“I want to do a bit of travelling with

Sophie Fryer is keen to own a flat in London, but it is important to her that her investments are ethical and sustainable some of my savings and then, when I leave uni, get a graduate job in London, and maybe be a consultant in the ESG and sustainability area. I also like finance and investing, so maybe somewhere in that space.

“The most important thing to me is that any investment I make is responsible and sustainable. That is the biggest problem that I found when looking to invest. I don’t just want to invest in the FTSE 100.”

One problem with ESG funds is that, of late, they haven’t performed as well as in previous years. These funds hit their peak in 2021, as a record £537bn flowed into sustainable funds globally, up from £449bn in 2020, according to data from analysts Refinitiv. But, according to data from global funds network Calastone, nearly £2.5bn has flowed out of ESG funds to the end of May this year.

Ms Fryer’s challenge will be to pick the right sustainable funds to help her reach her goal.

Phil Jenkins Chartered financial planner at Wren Sterling

I would recommend keeping a rainyday fund of £5,000 and setting aside the same amount for Ms Fryer’s plans to travel. As a graduate in London, she will encounter costs for which she needs to make provisions.

She already has a lump sum in an Isa. This can be moved gradually to a stocks and shares Lifetime Isa by a maximum of £4,000 a year. She can then benefit from the Government’s top-up of 25pc bonus, which is payable monthly.

Many major investment platforms offer ESG funds on an index basis, which is her best option for investing responsibly. Ms Fryer should look out for high MSCI ratings on ESG funds, so she can find out exactly what the funds are investing into, as not all sustainable funds are created equally.

She is prepared to accept risk, and as she has time on her side Ms Fryer will be able to ride out short-term market volatility, but she can’t afford to lose too much, so should be conscious of investing costs. Topping up investments from a salary is also a good place to start.

London’s average graduate salary in finance is £38,000, so if she earns that she could contribute £250 a month to her investment fund and will build wealth quickly.

Based on the assumptions that house prices rise by 2.5pc annually, and investments grow by 5pc a year, and her rainy day savings grow by 3pc [in a savings account], Ms Fryer should have enough for her house deposit after six years.

House prices are very resilient in London, particularly for first-time buyer properties in sought-after boroughs, so there’s a chance Ms Fryer will need more than she thinks. She should also make provision for the costs of moving, setting aside an extra £2,000 to £3,000.

Zoe Gillespie Investment manager at RBC Brewin Dolphin

Ms Fryer has managed to make a healthy start to her property purchase fund by saving £20,000.

Holding the funds in cash limits investment returns and as she is accepting a higher level of investment risk, she should consider investing in equity-based assets that would give her the chance to generate better returns.

This approach can lead to more capital volatility, however creating a diversified portfolio will help create a better spread, while picking funds instead of individual companies will reduce any stock-specific risk within the portfolio.

From a tax perspective, it is important to invest as efficiently as possible to limit tax erosion on capital gains. Investing within a stocks and shares Isa wrapper protects any future gains.

To fit with her desire to invest ethically, I have picked three ESG equity funds. They differ in styles and investment approach and would therefore work well together within a portfolio.

The Schroder Global Energy Transition fund invests in companies that are leading the charge in clean energy. The fund invests in companies that generate at least half of their revenue from activities contributing to the transition or those who play a crucial role in the transition to renewables. It is a good opportunity to invest in a fund that focuses on greener energy.

The Liontrust Sustainable Future Global Growth fund’s investment process uses a thematic approach to identify the key structural growth trends that will shape the global economy of the future and then seeks to invest in well-run companies whose products and operations capitalise on these green and transformative changes.

All investments will be expected to conform to their ESG criteria. The fund has a consistent performance record, returning more than 50pc over the past five years.

Finally, the Impax Environmental fund invests in global companies that are developing innovative solutions to resource challenges in environmental markets. These markets address several long- term macroeconomic themes, such as a growing global population, rising living standards, increasing urbanisation, rising consumption and the use of natural resources. The trust has a long, established track record.

Ms Fryer can add to the portfolio when she has funds available and would benefit from making investments at periodic intervals to cover fluctuations in the market.