Where is my money invested?

Within this article, we will look at where money is invested generally. Although there is some control over this in the amount of risk we take, the actual nuts and bolts of where the money is put to use can be a grey area and within that, your money could be invested in places that may not be aligned to your values.

Where is my money invested?

When you invest money, you will:

  1. Invest into a product or tax wrapper (e.g. a Pension or ISA)
  2. Within that wrapper, your money will be pooled with other investors’ and invested in fund(s).
  3. The fund will have a remit to invest into one of several areas including Cash, Fixed Interest, Property, Shares, commodities or a mixture of these.
  4. Each of these asset classes will then generally buy shares in companies, own property which is rented out to companies, lend money to companies or lend money to government departments.

We all have visibility of the tax wrapper into which we are investing and the name of the fund(s) where our money is sitting but do we know what that money is being used for?

Fund management

Power StationIt is the fund managers’ responsibility to ensure they are investing in line with the fund remit while trying to get the best returns from the companies they own within the fund, the property yields, lending and so on. Mainstream funds do not look under the bonnet at the ethics of the companies, their sustainability, green credentials or social responsibilities as this is not part of their remit.

It is often difficult to get a full overview of the companies into which funds are investing. But if we take a mainstream managed fund (Standard Life Managed Pension Fund) as an example their top 10 holdings (as at October 2019) are as follows:

Rank Largest Holdings %
1 ROYAL DUTCH SHELL 2.30
2 HSBC HLDGS 1.50
3 BP 1.40
4 MICROSOFT CORP 1.10
5 PENSION PROPERTY 1.10
6 GLAXOSMITHKLINE 1.00
7 BRITISH AMERICAN TOBACCO 0.90
8 PRUDENTIAL PLC 0.90
9 ALPHABET INC 0.80
10 RIO TINTO 0.80

This is not a dissimilar make up to other providers’ Managed funds.

Within just the top 10 holdings making up just 11.8% of the fund, there are:

  • 2 energy companies
  • A property funds that has goodness knows who as tenants
  • 2 financial institutions
  • A pharmaceutical company
  • 2 IT Companies
  • A tobacco company
  • A mining group

Are these Companies Ethical? I am sure we all remember the BP Oil spill of 2010 and may question the ethics of a tobacco company. We have no idea of where the other 89% of our money is being used for and if they are therefore aligned to our values.

Areas of investing that may cause concern

Because of the inability to see where our money is actually being invested, it may cause concern. Money could be used to invest in any of the following areas:

  • Energy companies
  • Arms/defence
  • Companies that test on animals
  • Intensive Farming
  • Genetically modified foods
  • Tobacco
  • Alcohol
  • Gambling
  • Oppressive regimes
  • Mining
  • Banks
  • Manufacturing

TabaccoThere is no governance over the companies or focus on sustainability as the fund manager will focus upon getting the best returns for the minimal risk within the fund’s parameters.

Ethical or Socially Responsible Investing (SRI) funds on the other hand have the remit to avoid companies such as those associated with gambling and find companies that are socially responsible/ethical or actively invest in companies who have strong ethics/social responsibilities and so on.

To conclude

Where is my money invested? Within non- ethical/SRI funds, fund managers operate within the fund remit to achieve the best returns for their investors. This means that your money could be used to invest in anything from tobacco to armament.

If you would like to review your exiting investments within any of your pensions or investments, do get in touch.

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