It’s natural to look at some of the big challenges in our society and want to help out.
Of course, this can be done by volunteering or giving to charity, but there is also another option: investing in social projects.
There is a rising number of investment opportunities to both help out and make a decent investment return. For example, investors can put their money into affordable housing, good healthcare and sustainable food projects.
As always, it’s important that investors never put all their eggs in one basket, so social projects should form only a component of a balanced portfolio.
Helping hand: It’s natural to look at some of the big challenges in our society and want to help
However, investments in social projects can make a good portfolio diversifier as their shares tend not to rise and fall in line with stock market volatility.
Investors can access social projects through funds and stock market-listed investment trusts.
By holding these funds in an Isa, they can protect their investments from tax. Alternatively, they can invest through an innovative finance Isa.
Investing via funds and investment trusts
There is a limited number of funds and investment trusts that specialise in social projects, although there are likely to be further launches in the future.
One such fund is Schroder BSC Social Impact, an investment trust launched in December last year by investment manager Schroders and social investment institution Big Society Capital.
The £77million trust invests in projects that aim to tackle homelessness, provide support for people with learning disabilities, offer housing for domestic abuse survivors, and address other pressing social challenges.
For example, it recently invested in the Stronger Families programme. This supports young people and families in Norfolk by improving communication between them and thereby enabling young people to stay with their families rather than go into care.
If a young person does not go into care because the programme has been successful, it receives a payment from the council to reflect their improved life chances and reduced care costs.
James Lowe, investment trust business development manager at Schroders, says: ‘The trust aims to make a return of two per cent above inflation. It is not just about making a profit – the social impact it brings about is just as important.’
Laith Khalaf is a financial analyst at investment platform AJ Bell. He believes the Schroder trust is innovative, but warns that as it is so new it lacks a credible performance record.
He says the investment trust structure is well suited to this type of investment.
This is because investment trusts are closed-ended, which means that investors can withdraw their money at any time without forcing the fund managers to sell any underlying assets, which may not be easy to do without plenty of notice.
Shares in the trust can be bought at £1.05, although the fact that they stand at a premium to the fund’s underlying assets may deter some investors.
Khalaf says that anyone who want a more diversified fund that invests in listed companies providing a positive environmental and social impact might consider Liontrust Sustainable Future Global Growth.
There is a number of investment opportunities to help out & make a decent investment return
This has turned a £1,000 investment into £1,757 over three years and invests in well-run companies around the world whose products are shaping the global economy of the future.
Some property investment trusts also specialise in providing social housing and buildings for essential services.
Susannah Streeter is senior investment and markets analyst at wealth manager Hargreaves Lansdown.
She likes Civitas Social Housing, which provides supported living accommodation for tenants with learning disabilities and mental health needs.
‘The investments are mainly based on long-term leases with registered providers, so they should provide a stable rental return,’ she says.
‘There is also likely to be strong demand for the accommodation the trust invests in, given the lack of specialist housing to meet the needs of potential residents. The company has already developed a pipeline of potential acquisitions.’
The trust has turned a £1,000 investment into £1,328 over three years and last week announced a quarterly dividend of 1.3875 pence a share. It also claims it has created ‘social value’ of £127million in the year to April, through direct cost savings to the public purse and improved wellbeing for its residents.
Streeter also likes Primary Health Properties. This trust invests in community healthcare facilities, earning an income from the leases it negotiates with the tenants (usually Government-backed).
Other trusts with a social impact thrust include Target Healthcare and Triple Point Social Housing.
Investors can access social projects through funds and stock market-listed investment trusts
Investing through an Innovative Finance Isa
The innovative finance Isa is the lesser-known cousin of the stocks and shares Isa and cash Isa. It too is a tax-free wrapper and all UK taxpayers are entitled to put up to £20,000 – their full Isa allowance – into one every tax year.
A number of social projects are available to invest in through an innovative finance Isa.
For example, through its innovative finance Isa, the ethical bank Triodos offers access to a range of social impact investments.
It recently raised £1.5million to support Paces Sheffield, a leading charity for people with cerebral palsy and other neurological motor disorders.
The eight-year bond offered pays six per cent interest per year, with a minimum investment of £50.
Other recent investments include helping the YMCA to develop a community and activity village in Newark-on-Trent, Nottinghamshire – and helping charity Thera Trust to provide homes for people with learning disabilities.
Returns are not guaranteed and there is no protection for investors if something goes wrong. It is also not always possible to get money out early, so investors need to be able to invest for the long term.
Abundance Investment also offers access to social projects through an innovative finance Isa.
It has just launched an investment in Sterling Suffolk, a commercial tomato grower which is reducing the environmental cost of growing tomatoes in the UK with cutting-edge glasshouse technology.
Investors will earn eight per cent per year over the bond’s 11-year term, although the return is not guaranteed.
Britons consume more than 500,000 tons of fresh tomatoes each year, but four fifths are imported, leading to a high environmental cost.
Bruce Davis, co-founder and managing director of Abundance Investment, says: ‘Finding scalable ways to cut the environmental cost of the foods we eat has to be a priority if we want to feed ourselves more sustainably in the transition to a net zero economy.’