If you are not familiar with Swell Investing, let me take a second to introduce it. Swell is a social impact investing platform that provides consumers the opportunity to invest in various conscious investment projects focused on six positive future categories: Green Technology, Renewable Energy, Zero Waste, Clean Water, Healthy Living and Disease Eradication. With as little as $50, Swell is aiding consumers with opportunities to invest in platforms that aims to deliver profit as well as purpose.
By identifying high-potential companies focused on innovative solutions addressing today’s biggest challenges, Swell is bringing forth results for tomorrow’s leading industries, while educating consumers on conscious investments without sacrificing returns.
Below is a Q&A With Dave Fanger, CEO and Founder of Swell Investing.
Tell us about the origins of Swell. How did it all come to be?
In 2014, I was on a long flight with a colleague and got to talking about the lack of impact investing options for everyday people. We saw the need for an investment option for people who deeply cared where their money is going. From this one conversation, I was motivated to create an accessible investment option with equal focus on impact and return.
What began as a passion project quickly turned into a tangible idea that persuaded Pacific Life to support and ultimately back.
When someone asks you what Impact Investing is, how do you respond?
The formal definition is investments made into companies, organizations, and funds with the intention of generating a measurable, beneficial social or environmental impact alongside a financial return. That means your money is accomplishing two things–securing your financial future and securing the future of the planet.
For us, that means each of our portfolio companies must have revenue stemming from the way they are solving a major social or environmental challenge.
The idea is that companies solving enduring challenges like access to clean water and renewable energy present a market opportunity because they are poised for growth over the long term.
As an example, Xylem, in our Clean Water portfolio, supplies energy-saving pumps and controls, maximizing every last drop of water and ounce of energy in commercial and residential properties. Mohawk Industries in our Zero Waste portfolio offers a line of carpets made from 100% PET plastic soda bottles, and has a program to repurpose all process waste from their facilities.
What type of impact portfolios does Swell offer?
Swell’s portfolios are available through separately managed accounts. Unlike with an ETF or mutual fund, this means that investors in our portfolios actually own shares of each company. This also allows our investors to deselect companies from their “Swell mix,” or the combination of portfolios they choose to invest in and thus take them out of their portfolios. We have incredibly high standards for the companies that make it into our portfolios, but we found through consumer research that investors still might find one or two companies that they don’t agree with. We want them to have the option to feel completely aligned with the companies they invest in.
How do you choose which companies end up in Swell Impact Investing portfolios?
Swell uses a “rules-based” investment approach designed to identify the stocks of companies that are actively driving towards progress. First, Swell identifies the companies that derive revenue from products or services addressing environmental or social challenges as they are outlined in the U.N. Sustainable Development Goals. Swell also screens each company to make sure it has positive social, environmental and governance policies. For example, is this a company that’s dedicated to using renewable energy and taking care of its workforce? This level of scrutiny and dedication to true impact sets Swell apart. Finally, we review the investment fundamentals to optimize the risk return profile of the portfolio.
What are some misconceptions about social impact investing that you think need to be talked about?
While we share many resources with our investors about Swell’s investment approach on our site, there’s an enduring misconception among investors at large that socially responsible and impact investing doesn’t drive returns. But in fact the MSCI KLD 400 index which includes only companies with high Environmental, Social and Governance (ESG) ratings, has outperformed the S&P 500 for more than 25 years. Since inception (9/30/2016) through March 31, 2018, Swell’s combined six portfolios have outperformed the Russell 3000, which is the broad market benchmark that we use to measure performance. Swell’s total return net of fees for this period was 26.95%, while the Russell 3000 total return was 25.42%.
Are Swell portfolios managed by a robo-adviser for automatic rebalancing?
Actually, Swell itself is a registered investment adviser, and our impact and portfolio management teams perform their own quarterly rebalancing. Since we have such high standards for the companies in our portfolios we regularly go through our holdings and make sure each company continues to contribute to the UN Sustainable Development Goals. For example, what happens if a company has a subsidiary that is deriving revenue from selling a product made from recycled materials, but they sell it off? That company would be taken out at our next quarterly rebalancing.
Historically, what have been the best performing Swell portfolios and why?
All of Swell’s portfolios combined outperformed the broad market through the end of the first quarter this year. Some of our portfolios, such as Green Tech, have consistently returned 35-40%. The Green Tech portfolio has performed well for a few reasons, but one of them is that it includes 3D design software makers, such as Autodesk and Ansys. These companies are performing well because they are incredibly innovative. 3D design helps architects and designers create everything from tools to building materials without having to ship them long distances. They can quickly design and print them on a 3D printer.
They’re also impact companies because they save fossil fuel energy that would have been used to create and ship those items.
Overall, impact investing works because companies that are dedicated to creating a positive future are also poised to drive returns.
We’re transparent about how all of our portfolios are performing, so you can view all six as well as their performance here.
It’s important to note as well that this isn’t a new concept. More than one out of every five dollars under professional management in the United States is invested according to socially responsible strategies.