Diversification and sustainable satellite opportunities

At Davy, we understand that institutions, not-for-profits, and charitable organisations face a unique challenge: achieving long-term financial sustainability while remaining true to their mission and values. For these organisations, diversification is not just a financial strategy it is a core part of good governance. As Nobel Laureate Harry Markowitz famously stated, “Diversification is the only free lunch in investing.” This principle is especially relevant for fiduciaries seeking to balance risk, return, and responsible stewardship.

Key takeaways

• Diversification supports good governance by reducing reliance on any single return source.
• A Liquidity / Core / Satellite structure helps match investments to time horizons and objectives.
• Satellite allocations can express sustainability themes in a controlled, smaller portion of the portfolio.

Our Capital Allocation Framework segments investments into three parts - Liquidity, Core, and Satellite - each tailored to specific objectives, time horizons, and risk profiles. This structured approach enables us to deliver tailored investment solutions that are both robust and responsive to evolving market dynamics.

Source: Davy

The Satellite Segment: A platform for sustainable innovation

The Satellite allocation is where we introduce high-conviction, forward-looking investment ideas. For mission-driven investors, this segment offers a powerful opportunity to align capital with purpose - whether through environmental stewardship, social advancement, or governance excellence.

In practice, Satellite investments are typically smaller, targeted allocations that complement the Core - adding diversification or expressing specific long-term themes, while accepting that returns can be more variable.

For fiduciaries and mission-driven investors, sustainable investing is becoming a mainstream expectation. The Morgan Stanley Sustainable Signals report (April 2025) found that 64% of investors say their interest in sustainability has increased over the past year, and 59% plan to boost their allocations - citing both financial performance and growing confidence in the competitiveness of sustainable investments as key drivers.

Sustainable investing can be implemented in different ways (for example through exclusions, ESG integration, stewardship, or thematic exposure), so it is important to be clear on the approach used and how it is assessed.

This trend reinforces the importance of integrating sustainability into Satellite strategies - not only to align with organisational values but also to capture emerging opportunities in a rapidly evolving investment landscape.

Overview of sustainable satellite investment options

As part of our tailored Satellite investment strategy, we offer a range of sustainable solutions designed to meet the dual mandate of financial performance and values alignment. These options span thematic funds, structured products, and real assets - each offering unique benefits and diversification potential.

The table below provides a summary of these key categories and their role in building resilient, value-oriented portfolios.

Conclusion: Diversification with purpose

For institutions, charities, and not-for-profits, diversification is a strategic tool for fulfilling fiduciary responsibilities while advancing mission-aligned goals. Through our Capital Allocation Framework - and particularly within the Satellite segment - we empower organisations to pursue sustainable, high-conviction investment opportunities that reflect their values and long-term vision.

Whether through thematic funds, structured products, or real assets, our goal is to deliver resilient, ethically aligned portfolios that stand the test of time.

To explore how these options could fit within your organisation’s investment policy and risk parameters, speak with your Davy adviser.

Source: Morgan Stanley Institute for Sustainable Investing. Sustainable Signals: Individual Investors 2025. April 2025.