The pandemic is causing major volatility on stock markets globally, and as a foundation that relies on our investments to fund our work, we are watching the markets very closely and are encouraged by the performance of our portfolio. Given the extraordinary market environment and Inspirit Foundation’s focus on impact investing, we thought it would be worthwhile to explain our strong investment performance during the first quarter of 2020.
Back in 2016 Inspirit committed to a 100% impact portfolio. The goal from the outset was to transition what was a relatively traditional portfolio to one entirely composed of impact investments, without sacrificing financial returns. We define impact investments as companies that are top performers on environmental, social, and governance metrics associated with Inspirit’s mission. These companies also earn a majority of their revenue by contributing to a more inclusive and pluralist society. By the end of 2019, Inspirit had shifted nearly 80% of our portfolio to impact investments.
During this time period, Inspirit added over 1.7% in financial return to our portfolio relative to our benchmark. For reference, Inspirit uses an industry-standard benchmark. Our benchmark is a combination of industry-standard indexes, like FTSE TMX Universe Bond for the fixed income allocation of our portfolio, S&P/TSX Composite for Canadian equities, and MSCI ACWI (CAD) for global equities. The overall benchmark is a composite of the above, weighted by portfolio allocation.
That means that our portfolio outperformed benchmark by slightly more than 1.7% from 2016 to 2019. While this was not a massive outperformance, it was an outperformance nonetheless, and one that was generated primarily through impact investments. Our portfolio did not sacrifice financial returns due to our impact investing. In fact, it was those investments that generated outperformance, a trend that has been more pronounced in recent years as the portfolio transitions closer to our goal of a 100% impact portfolio. You can learn more about our historical and current performance here.
The above graph demonstrates our portfolio’s annual performance relative to benchmark since our commitment to a 100% impact portfolio in 2016. Our portfolio outperformed benchmark in the two most recent years, which is also when we made significant traction toward our goal of a portfolio entirely composed of impact investments. To illustrate this further, below is what a $10,000 investment in the Inspirit portfolio from 2016 to 2019 would have looked like compared to our benchmark.
When the global pandemic hit, we were not totally immune to the devastation and uncertainty during the first quarter of 2020. However, Inspirit’s portfolio still outperformed benchmark by more than 4.5%. The reason for our outperformance is clearly due to the strong relative performance of our impact investments. The table below provides a breakdown of our portfolio by asset class, and whether each asset class allocation is a traditional or impact investment.
The right-hand column at the end demonstrates the performance of each asset class against its associated benchmark. The only asset class that significantly underperformed relative to benchmark is our Canadian equities, the lone asset class that we have not transitioned to increase its positive impact. The rest of our asset classes have had relatively strong performance compared to benchmark, especially our global equities as they outperformed benchmark by over 11%. It is worth noting that while our fixed income asset underperformed relative to benchmark this quarter, it has outperformed benchmark since inception.
Given that, here is how a $10,000 investment in the Inspirit portfolio would have compared to our benchmark, as of the end of Q1 2020.
While the pandemic is having devastating local and global consequences, a tiny sliver of a silver lining is that investments that are good for both people and the planet are doing well for Inspirit during this trying period. We will continue to monitor our portfolio over time, but we expect our impact investments to add value to our portfolio, as we live our values through our impact investments.
