Portfolio Theories: A Comparison Between General and Sustainable Portfolios

Sammanfattning: Insurance companies hold large amounts of assets to ensure that they can meet the claims of policyholders. They prefer safer investments with lower risk to guarantee future payouts. Sustainability has become a growing topic over the last couple of years and insurance companies have the possibilities to make the world more sustainable. However, sufficient returns is a priority. This thesis will investigate the impact of sustainable investments on portfolio risk and returns. To enable this investigation, a general and a sustainable portfolio were created for two different markets. These portfolios were then managed using different portfolio theories and backtested to assess their performance compared to a benchmark index over the last 12–15 years. We also tested different measurements to see if there was a statistically significant difference between the general and sustainable portfolios. We found that in a smaller market with a low number of sustainable companies that generate better returns than the benchmark index, general portfolios tend to generate better returns and lower risk compared to sustainable portfolios. In a larger market with a larger set of unsustainable stocks, we found that the maximum drawdown where lower for the sustainable portfolios, otherwise, no statistically significant difference were found. After analysing the results, we can say that the they can be used as a guideline for someone interested in markets that are similar to the ones used in this thesis. Otherwise, one should recreate this investigation with their specific sets of stocks to help them get more useful results. Investing is a personal matter and a change of preferred markets or sustainability criteria etc. could alter the results.