Impact Investing and the Pandemic-Part 2

After nearly five months, the pandemic continues to dictate all aspects of the economy, including investments. When we reported on our investment performance after the first quarter of 2020, we were just at the beginning of what is now expected to be a fundamental shift in the global economy. Despite this, and a historically steep decline in value in the financial markets, Inspirit’s investment portfolio still managed to outperform our benchmark by 4.5%, a value-add driven entirely by our impact investments.

Despite a recovery in the financial markets during the second quarter of 2020, the adverse effects of the pandemic continue to persist. While we at Inspirit are not certain of the market’s ability to maintain its current levels, our portfolio’s financial performance halfway through the calendar year is generating healthy returns relative to our benchmark.

The table below outlines the performance contribution of each asset class relative to our entire portfolio. Performance figures are year-to-date results, as at the end of the second quarter. For reference, 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.

There is one number that stands out the most in the above table; the 3.4% year-to-date outperformance of Inspirit’s portfolio relative to our benchmark so far in 2020. The figures in the most right-hand column show that the outperformance is generated because of our impact investments. This is despite the poor performance of our Canadian equities, the only asset class we have yet to transition to impact.

That is about to change. Inspirit has been searching for a Canadian equities product that has the potential to earn healthy financial returns, produce a low carbon footprint, and generate considerable positive social and environmental impact. We are pleased to announce that we recently formalized a partnership with Connor, Clark & Lunn Private Capital (CC&L) to become the first investor in a new mandate of theirs, managed by their affiliate manager PCJ. This mandate invests in publicly-traded Canadian companies, both big and small, that satisfy our financial, carbon footprint, and positive impact goals.

While we have yet to allocate capital to this new fund, we expect to by the end of this year. By then our entire portfolio will be considered impact investments, an ambitious goal that was set by our Board at the beginning of 2016. The only exception to our 100% impact portfolio will be our small cash allocation. Next year, we will focus on how to leverage our cash for positive impact too, so by the end of 2021, we project that our portfolio will be exclusively composed of impact investments.

The graph below demonstrates our portfolio’s 2020 returns compared to previous years. All figures are net returns, meaning the return results are after all investment fees are paid, excluding the 2020 numbers. This year’s figures are gross returns, which do not take fees into account yet. The reason that our 2020 results are gross of fees is because we do not have all the necessary information to calculate net returns just yet. Since our portfolio has a low fee structure, we are confident of a significant outperformance of benchmark in 2020 compared to previous years.

To illustrate our performance in another way, below is how much growth a $10,000 investment would have achieved in the Inspirit portfolio relative to benchmark from 2016 to the end of the second quarter of 2020. Notice the significant growth gap in 2020 so far.

While the financial markets have made a quick and possibly short-term recovery, but as the pandemic continues, so will the social and economic toll. We expect significant volatility going forward, but even during these unpredictable times, impact investments are proving to be more resilient and stable compared to traditional investments. From a financial perspective, our impact investments have positioned Inspirit’s portfolio to outperform during the first half of this difficult year. We hope, and expect, our portfolio to remain resilient throughout the pandemic, and we will continue to share results along the way.