costanera-surPeak Water Portfolio

Portfolio Overview

My book, Low Fee Socially Responsible Investing: Investing in your worldview on your terms, presents a mechanism for examining a collection of existing mutual funds with the purpose of identifying a common list of holdings that can be further filtered. There are a number of existing mutual funds and exchange traded funds that specialize in holding stocks of companies that are involved in the water technology, distribution or storage.

A portfolio of holdings associated with water may be of interest to low fee socially responsible investors for at least two reasons. First; such a portfolio may be used in combination with others (e.g. Political Accountability, Fossil Free) to provide additional diversification. Given the nature of some of the companies involved in this sector, some company size diversification may be provided. Second; recognition of a planetary water crisis aligns with their worldview and that increased investment in this area is warranted.

The portfolio objective is to present a transparent screening formula that allows an investor to favor investment in corporations that are typically included in a cross-section of water-focused funds, while still maintaining adherence to good investment practices such as diversification, attention to company financial stability and low investment fees.

It is assumed that investor activism will be of particular interest to those already familiar with socially responsible investing (SRI). The proposed portfolio, therefore, filters out firms that are not included in any of the broad SRI indices.

Investment Criteria
US-listed stocks that are typically included on a major social responsibility index.

Company should be in top fifty common holdings of a collection of water-based mutual funds. An equal weighted portfolio of these funds can be used to establish common holdings using commercially available tools. The choice of mutual funds and exchange traded funds can consider factors such as fund rating, fund asset size, and relevance to the objective (e.g. water technology). It is recommended that at least four funds be looked at. Rank companies in descending order using a financial stability metric (e.g. Morningstar® rating, S&P credit rating). Include between 20 and 40 stocks and equally weight the allocation.

Low Fee Implementation Options
Do-it-yourself (DIY) or DIY with some advisor assistance

Depending upon an investor's worldview, experience and access to portfolio evaluation tools, one option would be to use the stated investment criteria to construct and test a portfolio of holdings that result from following the investment criteria identified. Portfolio back testing can be helpful in identifying the historical performance characteristics and volatility. Investment platforms such as Folio Investing and Motif Investing have fee structures that make it practical to build a portfolio of individual stocks, and invest in fractional shares as needed, for a relatively low fee. Discount brokerage platforms which require wholenumber share purchases and have trading costs based on the number of stocks in the portfolio may require that a significant amount of investment be made to keep the investment cost in alignment with a low fee philosophy.

It is highly recommended that you obtain some professional investment advice in order to establish that your overall portfolio mix is in alignment with your risk capacity, time horizon, tax planning needs, and overall financial objectives. Many hourly, fee-only, advisors would be able to develop and/or evaluate your investment plan and generate a snapshot of the anticipated risk/return profile. While some clean technology portfolios (i.e. highly focused on a particular technology or small companies) can be very volatile, portfolios consisting primarily of large company stocks may more closely follow the general market index.

This information is not intended to provide specific investment, tax or legal advice. You should consult appropriate professional help for your investing decisions. The site sponsor may own securities that would be identified using the screening tools noted.

Any references to investment performance are historical in nature. Past performance does not guarantee future results, and all investments entail risk of loss, including the potential for loss of principal. Each investor is unique: factors including his or her investment experience, tax situation, time horizon, tolerance for risk and fluctuations in value should be weighed carefully before making an investment decision.

The views expressed are solely those of the site sponsor and do not necessarily represent the views of any organization that the author is associated with. The site sponsor does not receive any fees for mention of any source of information or service provider.

Photo Attribution: "costanera sur-7"
by dandeluca is licensed under CC BY 2.0