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Responsible Stewardship

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Faithful Approach to Investment Stewardship By Sarah Newman and Peter Girard In this tumultuous environment, there is no shortage of opinions on the likelihood—or not—of a coming economic recession. Whether…

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Faithful Approach to Investment Stewardship

By Sarah Newman and Peter Girard

In this tumultuous environment, there is no shortage of opinions on the likelihood—or not—of a coming economic recession. Whether you land in the soft landing, hard landing, or no landing camp, the new year is an opportune time to reevaluate best practices as it relates to responsible stewardship of your company’s investment portfolio.

Stay diversified

We don’t pretend to know the future for any asset class, but we can be better stewards of capital by shifting our focus from prediction to maintaining a disciplined process. Since the interest rate rise starting in 2022, many have been tempted to totally “risk off” portfolios at a time when cash or fixed income investments can provide considerably higher returns than in the recent past. This approach, however, ignores significant reinvestment risk and opportunity cost to the portfolio. A long-term perspective and staying diversified ensures your portfolio remains better equipped to weather the storms the market inevitably will bring.

Extend fixed income duration

Duration dictates a bond’s price sensitivity to interest rate changes. The higher the duration, the higher the interest rate risk and potential exposure to larger price swings. On the other end of the spectrum, maintaining near-zero duration by investing only in highly liquid government securities, such as Treasury Bills, exchanges interest rate risk in the portfolio for significant reinvestment risk. In the current high interest rate environment, adding duration and locking in current rates for longer is better than attempting to time the market. An unfortunate truth is you can only identify peak rates after they’ve come down, at which point it’s too late the benefit from them as a bond investor. Higher yields also impact other, less efficient areas of debt markets, such as private debt.

Consider a biblically based portfolio

Faith-based investing involves many layers, the first of which is often screening. It is now common to include negative screens in a faith-based portfolio, meaning carving out those companies that profit from practices antithetical to the Christian faith, such as abortion, adult entertainment and gambling. It’s possible to align an investment portfolio with Christian beliefs and avoid investment in things that are contrary to your values.

Evaluate values alignment

It is also important to consider the values of those you do business with. Finding vendors with value alignment can help ensure that your portfolio dollars are invested by stewards who share your beliefs. Many financial institutions will happily do business with you while also openly promoting ideologies contrary to your faith. Consciously choosing to do business with those who have shared values can be an effective way to actively stand for what you believe in.

Ongoing analysis of your company’s practices as it relates to portfolio management and operations is a requirement to careful stewardship over your company’s investments. With proper oversight in place, your investments will provide for your firm’s future needs while being invested in companies that are aligned with your values.

Sarah Newman, Vice President, Innovest Portfolio Solutions, LLC, responsible for business development in the faith-based and secular nonprofit markets. Contact her at snewman@innovestinc.com.

Peter Girard, Manager, Innovest Portfolio Solutions, LLC, member of the Due Diligence Group and the Capital Markets Team. Contact him at pgirard@innovestinc.com.

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