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The Rise of the Values-Driven Investor

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This infographic is available as a poster.

The Rise of the Values-Driven Investor

This infographic is available as a poster.

The Rise of the Values-Driven Investor

Many consumers today are considered to be “values-driven”, meaning they consider a company’s stance on environmental and social issues before making a purchase.

Such individuals will research a company’s reputation, boycott brands that are not aligned with their beliefs, and avoid products that negatively impact the environment. These types of concerns, however, aren’t just influencing the things people buy—they’re also changing the way people invest.

In this infographic from New York Life Investments, we profile the values-driven investor and examine the different ways their concerns can be incorporated into an investment portfolio.

What is a Values-Driven Investor?

Values-driven investors seek to align their portfolios with their personal beliefs and create a positive impact for society. Because of these goals, they are naturally driven to consider environmental, social, and governance (ESG) factors when selecting investments.

One common misconception is that this type of investing is only for millennials, but survey data proves this is far from the truth.

Age Group
% Interested in ESG Investing
24-3991%
40-5484%
55+80%

Source: New York Life Investments

Although ESG investing is the most popular amongst younger investors, older investors are not far behind, with 80% of correspondents aged 55+ demonstrating interest. This interest also extends across wealth brackets, as shown in the table below.

Personal Assets% Aware of ESG Investing% Likely to Invest in an ESG Fund, if Aware
$100K-$150K41%43%
$150K-$250K43%40%
$250K-$500K31%41%
$500K-$1MM34%37%
$1M+42%29%

Source: New York Life Investments

It’s clear that ESG investing has captured the attention of a very diverse group of people, but what kinds of issues do these values-driven investors actually care about?

ESG Priorities by Age Group

Values-driven investors are likely to prioritize issues differently depending on their age. For individuals between the ages of 25 and 39, longer-term issues such as global warming receive the highest concern. This is likely due to younger investors having more years ahead of them, and thus a greater chance of exposure to the effects of climate-related issues.

Below is a breakdown of each age group’s ESG priorities.

IssueAges 25 - 39Ages 40 - 54Age 55+ 
Global warming34%34%27%
Impact of plastic on the oceans21%30%26%
Sustainability24%23%17%
Data fraud or theft14%20%29%
Gun control13%20%22%

Source: New York Life Investments

For investors with a shorter time horizon to retirement, immediate concerns take the highest priority. For example, 29% of investors aged 55 and over were concerned with data fraud or theft, compared to just 14% among those aged 25 to 39.

How Can a Portfolio Reflect These Concerns?

Values-based investors have two primary approaches to choose from when building a portfolio tailored to their beliefs.

Approach #1: ESG Exclusionary

The first approach is ESG exclusionary investing, also known as “negative screening”. This method is well-suited for investors who want their portfolios to be completely aligned with their beliefs and values.

It involves the reduction, or avoidance, of exposure to specific industries that go against one’s values. Industries that are commonly screened out include tobacco, gambling, alcohol, and fossil fuels, the latter of which has gained significant attention in recent years.

Commonly referred to as “fossil fuel divestment”, this type of exclusionary approach focuses on freezing new investments in the sector while gradually removing existing portfolio exposure. Today, over 1,200 institutional investors representing $14.6T in assets have pledged their commitments to going fossil fuel free.

Institution TypeBreakdown of Total Assets Pledged
Faith-based organization32%
Educational institution15%
Philanthropic foundation15%
For profit corporation13%
Government13%
Pension fund13%
Non-governmental organization (NGO)4%
Healthcare institution1%

Source: Fossil Free (a project of 350.org)

Approach #2: ESG Inclusionary

The second approach is ESG inclusionary, also known as “positive screening”. This method is for investors who believe that companies with strong sustainability practices can outperform over the long term.

Instead of avoiding specific industries, an ESG inclusionary approach seeks to identify the best companies in any given industry. In practice, this involves the analysis of both traditional financial metrics and ESG factors.

Examples of Traditional Financial AnalysisExamples of ESG Factor Analysis
Analyze the company’s financial statementsExamine the company’s waste management practices
Study historical market trendsMonitor the company’s employee relations
Consider the direction of the broader economyGrade the company’s transparency & disclosure

Research on the effectiveness of ESG factor analysis has been overwhelmingly positive, and is a likely reason for the robust growth these types of strategies have seen in recent years. In fact, ESG leaders (companies with strong ESG practices) even outperformed their respective indices during the COVID-19 selloff in Q1 2020.

Building a Well-Aligned Portfolio

Despite several myths surrounding sustainable investment, there is an incredibly diverse group of individuals who want their portfolios to reflect their personal beliefs.

The typical values-driven investor is 48 years old, which means they’re likely in their peak earning years and are able to make larger portfolio contributions. Thus, this growing demographic is one that the investment industry should not ignore.

The types of issues these investors care about, however, can vary depending on age and other metrics. Thus, it’s important for them to learn about the different investment approaches available. Armed with this knowledge, investors can take better control of their finances and feel more confident in their decisions.

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Infographics

Visualizing the Attributes of the Best Financial Advisors

What makes the best financial advisors a cut above the rest? We break down how advisors rank on five defining attributes.

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Best Financial Advisors

This infographic is available as a poster.

Visualizing the Attributes of the Best Financial Advisors

What sets the best financial advisors apart?

New research from Founder and President of SHOOK Research R.J. Shook, renowned performance coach Dr. Kevin Elko, and NYL Investments examined the core attributes of those at the top:

  • Intrinsic Motivation: Creating purposeful work.
  • Boldness: Committed to a clear vision.
  • Resiliency: Being prepared for setbacks.
  • Connections: Building lasting relationships.
  • Goal-Setting: Documenting, articulating, and accomplishing goals.

Going one step further, they showed how a random selection of financial advisors compared to the top advisors. Across an ongoing assessment of roughly 400 advisors, this infographic from NYL Investments looks at where they align the most with top advisors, and where they fall short.

The Strongest Alignment

Here are the areas where surveyed advisors aligned the closest to the best financial advisors.

Connections

More than any other attribute, financial advisors were most aligned on the connections attribute. For instance, of the 400 respondents, 78% say that they take note of important events in their clients’ life. Expressing interest in them is an important part of the success of their business.

When it comes to the human interaction side of their job, 76% said that connecting with clients and colleagues is vital for their business.

Do you enjoy the human interaction side of this job?% of financial advisors
I enjoy intentionally connecting with clients and colleagues. It's key to my business.76%
I enjoy talking to a client, yet I find myself putting it off.21%
I find myself hiding behind my emails.2%
My time is better spent otherwise—studying the markets, etc.1%

An even higher number (81%) said that clients can call them anytime if they need help with issues outside of financial wellness, while 86% said that helping colleagues serves as a key opportunity to grow.

Intrinsic Motivation

Like the best financial advisors, the vast majority of advisors believe that luck is where preparation meets opportunity. By contrast, just 8% believe luck will fall in their lap if they work hard enough.

Additionally, most financial advisors stick to their guns. Almost 80% said that while they may find themselves on the same path as others, they won’t hesitate to create a new one that follows their goals and values.

Do you find that you often follow the path as set by others as opposed to creating your own path?% of financial advisors
I sometimes find myself on the same path as others, yet if it's not aligned with my values or goals, I don’t hesitate creating my own path.79%
Once in a while, I will create my own path, yet I find myself jumping back to the path others are on out of comfort.10%
I seem to follow others more than anything, yet I'm not afraid to create my own path and stay the course.10%
Creating my own path is so risky. I’m most comfortable following others.1%

This suggests that many advisors are often motivated from within as opposed to extrinsic, external factors.

Resiliency

Finally, 77% of financial advisors say they enjoy taking on new challenges as it makes them feel more valued and accomplished. Feeling a sense of value extends to their clients, with 78% saying they make a positive impact on their clients’ lives.

Do you feel what you do makes your clients' life better?% of financial advisors
What I do creates a positive difference in the lives of my clients. They often express so.78%
I believe my work makes a difference in my clients' life, yet I don't know to what extent.20%
I'm sure what I do makes some impact, but I can't imagine it's a whole lot.1%
I don't think my work makes a clients' life better.1%

The Biggest Gaps from the Best Financial Advisors

Where do surveyed advisors show the biggest differences from the best financial advisors?

Goal-Setting

Across all attributes, advisors had the most room for growth in the goal-setting attribute. What the researchers found was that just one in three advisors stick to their daily activity goals. At the same time, under 30% reread their goals after writing them down.

Do you write out daily activity goals before the day starts and stick to them?% of financial advisors
I create a couple of to-do's and try to accomplish those.43%
I create daily goals and stick to them for the most part.34%
My days are busy from the moment I open my eyes. I go with the flow.12%
I create daily goals that align with my 90 day goals and stick to them.11%

Here is how advisors connect goals to success, another key area with room for growth:

Do you believe a big part of your success is your focus on goals?% of financial advisors
When I make my goals a priority, I reap the rewards. I just wish I could focus more on them.48%
Focusing on goals eliminates my distractions and increases my success.40%
I don’t take the time to gauge my success. I don't know how goals impact any part of my success.11%
Goals are a waste of time. I, nor others, look at them anyways.1%

Nearly 50% feel they do not focus on their goals enough.

This is important to note, because research has shown that goal-setting has been linked to higher-performance, confidence, and autonomy.

The Power of Goal-Setting

Top advisors are driven by purpose and passion. But often, this can be challenging in the face of burnout. Here are key questions to help guide actions on a daily basis:

  • What did I do today that I liked? In one study, participants completed over 50% more exercise repetitions on activities they enjoyed versus ones that were seen as more effective.
  • What would I have done differently? Research shows that adversity and setbacks were important factors in performance development among Olympic gold medalists.

Creating a feedback loop helps with not only building momentum, but refining your results.

Learning from the Best Financial Advisors

Since the pandemic began, the value of financial advice has increased 52%.

Yet often, what distinguishes the very best advisors is their mindset. Harnessing the above core attributes can help improve the odds of success. To help create greater impact, advisors can take lessons from the best financial advisors and apply them to their own practice.

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Visualized: Three Investment Opportunities for the Future

Here are three investment opportunities to consider as the U.S. government proposes a record $6 trillion in budget initiatives.

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Investment Opportunities

This infographic is available as a poster.

Visualized: Three Investment Opportunities for the Future

With proposed government spending initiatives set to reach $6 trillion, the U.S. could be entering a new era of economic potential.

Sweeping measures have been proposed to support the economy—reaching levels of sustained spending not seen since WWII. These include a $2.3 trillion American Jobs Plan and a $1.9 trillion American Rescue Plan.

But how will this affect financial markets, and what investment opportunities does this present? As we look ahead, this infographic from New York Life Investments explores three potential areas of growth.

Three Investment Opportunities

Here are key trends that could shape the future—creating new opportunities for investors—as government spending increases:

1. The Strategic Role of Debt

In 2021, corporate debt sits at roughly 50% of U.S. GDP.

Importantly, COVID-19 relief packages helped offset a wave of defaults. Yet at the same time, a record $1.7 trillion in corporate debt was issued by nonfinancial companies in 2020—$600 billion higher than the previous peak. This rise in debt may offer potential investment opportunities.

In a low-interest rate environment, debt is relatively less expensive for companies to hold than during periods of high interest rates. This means they can invest in their business, make acquisitions, and gain greater market share.

Companies with investment-grade debt, which have stronger ratings from credit agencies, will likely be better positioned to make strategic business moves and mitigate the potential of future default.

2. Digital Infrastructure

There are several core components that underpin technology today:

Semiconductor chips: Key components in electronics such as smartphones, computers, refrigerators, and cars. As electronics proliferate, semiconductor companies may provide windows of opportunity. By 2030, electronics are projected to make up 45% of a car’s cost, up from 18% in 2000.

Broadband: Infrastructure required for internet access, including in rural and remote areas. Across OECD countries, broadband subscriptions per 100 people is just 33.3, illustrating a gap in access to high-speed internet. 5G, fiber optic cable, and internet infrastructure companies could offer the essentials that are needed.

Hyperscale cloud providers: Enable vast amounts of data and computing power to operate on cloud-based platforms, often in real time. With average gross margins of 57% and net debt to equity of 4%, cloud computing vendors could be poised for growth as data expands exponentially.

3. Emerging Markets’ Growing Middle Class

In the last two decades, emerging market (EM) income per capita has doubled. As disposable incomes rise, the consumer landscape is shifting towards more sustainable products.

Willingness to Pay a Premium for the Following Attributes% of Respondents
Contains organic/all-natural ingredients41%
Contains environmentally friendly/sustainable materials38%
Offers/does something no other product on the market provides37%
Delivers on social responsibility claims30%

Source: Conference Board Global Consumer Confidence Survey conducted with Nielsen. Data as at June, 2020.

Notably, the plant-based meat market in Asia is projected to grow 15.9% annually by 2026. In fact, global consumer searches for sustainable products have grown 71% since 2016.

Forces of Change

At this critical juncture in spending lies new investment opportunities. While it’s impossible to predict the future, strong underlying trends provide clues for how investors can think about positioning their portfolio.

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