Note: The views and opinions expressed in this newsletter are those of the authors and do not necessarily reflect the official policy or position of Newday Impact. Any content provided by our authors is of their opinion and is not intended to malign any religion, ethnic group, club, organization, company, individual, or anyone or anything.
Investors should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Past performance does not guarantee future performance.
IMPACT COMMENTARY
Friends with (Ecological) Benefits: Podcast
Many of you may be aware of our partnership with the creators of the Ecological Benefits Framework, which is a groundbreaking tool for assessing and targeting impact based on six essential pillars of air, water, soil, biodiversity, equity and carbon. The EBF has been created with input from hundreds of organizations, many directly involved in impact projects around the world.
Our work with EBF gives us access to unique insights that help ensure we direct capital to areas where it can have the greatest impact outcomes. It’s also brought us together with a whole host of amazing impact pioneers. Over the coming months, we will introduce some of our impact partners in this newsletter and share their insights in a series of podcasts.
This month, we talk to Drea Burbank, founder of grassroots conservation-focused B-corp Savimbo, which is helping create a new market for authentic, verifiable credits that can channel funding direct to the people stewarding the forest.
Drea works deep in the Colombian Amazon with a group of indigenous leaders who are protecting and restoring the rainforest using innovative techniques funded by carbon- and biodiversity credits.
By working with locals to track ‘apex predators’—those animals at the top of a food chain with no natural predators of their own—Savimbo is able to monitor the condition of the forest.
In the area where Savimbo is working, the jaguar is the apex predator. “Jaguar won’t go anywhere that the forest isn’t pristine, so it’s a really good proxy metric for jungle integrity,” she says.
By creating and selling biodiversity credits based on the health of the jungle, Savimbo is generating revenue that can support locals in their efforts to preserve the forest and fight off attempts by extractive industries to buy access to the land.
Biodiversity credits are similar to carbon credits, Burbank says, but with at least one key difference: “Indigenous groups can track biodiversity on their own. For carbon credits, you need a PhD scientist in silviculture or climate science in order to do a good project.”
Learn more about Drea and the phenomenal work she and the indigenous leaders are doing in the latest podcast episode by our head of comms, Dan Keeler.
IMPACT COMMENTARY
The Dark Side of the Nutraceutical Market
There has been a significant shift in health trends over the last few decades, with consumers becoming more conscious about nutrition and diet. This has led to a surge in the popularity of dietary supplements, functional foods, and nutraceuticals— products that combine the benefits of nutrition and pharmaceuticals. These products are believed to provide health and medical benefits, including the prevention and treatment of diseases. However, little attention has been paid to the adverse environmental impact of sourcing these products, particularly on our oceans.
In recent years, more consumers are turning to nutraceuticals for their health and wellness needs. According to a June 2023 report by Global Market Insights, the global nutraceutical market reached more than USD 423 billion in 2022. The industry is primarily consumer-driven, with a growing interest in preventative healthcare and wellness strategies fueling its growth, particularly in developed countries.
However, despite rising public interest in nutraceuticals, the lack of universally accepted definitions and diverse regulatory frameworks pose significant challenges. While nutraceuticals’ health benefits are well-documented, another side to the story is often overlooked – the impact on our oceans. Many nutraceuticals are derived from marine sources, mainly fish and krill. However, the increasing demand for these products is putting enormous pressure on these marine populations and the ecosystems they inhabit.
Fish oil supplements, which are rich in omega-3 fatty acids EPA (eicosapentaenoic acid) and DHA (docosahexaenoic acid), are among the most popular nutraceuticals. However, the growing demand for these supplements is putting significant pressure on fish populations. Furthermore, it is not just the fish populations that are affected. The entire marine ecosystem can be impacted as fish, particularly small forage fish that are often used to produce fish oil, play a crucial role in the marine food chain.
Krill, small shrimp-like crustaceans found in the ocean, are another important source of omega-3 fatty acids. Krill oil is often marketed as a more sustainable alternative to fish oil. However, the increasing demand for krill oil is leading to concerns about the sustainability of krill fisheries. Krill plays a crucial role in the marine ecosystem, serving as a primary food source for whales, penguins, seals, and fish. The increasing demand for krill oil could disrupt the balance of these marine ecosystems.
A study involving British Antarctic Survey researchers highlighted the role of Antarctic krill within the ocean’s carbon sink. The international research team found that krill can remove up to 12 billion tonnes of carbon yearly from the Earth’s atmosphere. In fact, according to newer research published by the World Wildlife Fund last month, krill remove as much as 23 megatons of carbon dioxide annually from the atmosphere, which is the equivalent of taking 5 million cars off the road every year.
Overfishing is a significant concern for both fish and krill populations. Overfishing can lead to the collapse of fish stocks, which can have devastating effects on the marine ecosystem. Furthermore, overfishing can also impact local communities that depend on fishing for their livelihoods. The loss of fish stocks can lead to economic hardship for these communities and can also contribute to food insecurity.
Given the growing concerns about the impact of the nutraceutical industry on marine ecosystems, there is a pressing need for more sustainable practices. This includes better regulation of fishing practices, improvements in aquaculture, and developing alternative sources of omega-3 fatty acids.
Improving the regulation of fisheries is a crucial step towards ensuring the sustainability of the nutraceutical industry. This includes establishing quotas to prevent overfishing, implementing measures to protect vulnerable marine ecosystems, and enforcing stricter standards for fishing practices.
Another promising approach is the development of alternative sources of omega-3 fatty acids. For example, certain types of algae, like seaweed, can produce EPA and DHA and be cultivated sustainably.
The nutraceutical industry offers many benefits, from promoting health and well-being to contributing to economic growth. However, it’s crucial that these benefits don’t come at the expense of the health of our oceans and the creatures that inhabit them. By exploring and adopting more sustainable practices, implementing stricter regulations and using alternative sources, it’s possible to reap the benefits of nutraceuticals without causing harm to our marine ecosystems.
NOVEMBER GLOBAL EQUITY COMMENTARY
Written by: Newday Investment Team
Both equity and bond markets declined in unison in August, September, and October as the year-over-year US inflation rate rose from a nadir of 3.0% in July to 3.7% in August and September, the first acceleration since June 2022 when inflation peaked at 9.1%.[1] So far in November, stocks and bonds have risen, with the October inflation rate receding to 3.2%. Sector performance was highly bifurcated in October and so far this year, with an enormous spread between leadership (Tech and Communication Services up over 30%) and laggards (Utilities and Real Estate down 16% and 11% respectively).[2] After having moved decisively lower in prior months, equity volatility rose in September and October, with the VIX peaking at just over 22.[3] Since hiking the Fed Funds rate to a 5.25-5.50% range at its July meeting, the front end of the yield curve has been well-anchored with bets on an additional Fed rate hike having receded and the potential for rate cuts increasing in 2024.[4]
Most PMIs indicated global growth continued slow through October. The JP Morgan global composite PMI has declined for five months sequentially since its peak in May with PMIs in Europe, China, Japan, and many emerging markets dropping.[5] In October the US bucked that trend, as the composite PMI rose for the first time since May, moving up to 50.7 from 50.2.[6] US nonfarm payrolls growth has been choppy with three of the last five months showing job growth under 200,000 and wage growth decelerating to 4.1% YoY, the slowest pace since mid-2021.[7] New unemployment claims have risen from lows and continuing claims have been trending higher.[8] Notably, the U-6 unemployment rate – which includes people who want to work but have given up searching and those people working part-time because they can’t find full-time employment – has continued to increase and is at the highest level since late 2021, indicating that slack may be available in the labor market to keep wage pressures from re-accelerating.[9]
U.S. Bureau of Labor Statistics data showed the US core inflation rate decelerated for a seventh straight month, reaching 4% YoY in October, the lowest since mid-2021.[10] Likewise, Eurostat data showed that YoY core inflation in the Eurozone fell to 4.2% in October, the lowest since mid-2022, while headline inflation declined to just 2.9%.[11] China is in outright deflation, with headline consumer prices declining 0.2% YoY in October and core inflation rising at just a 0.6% YoY pace.[12] The US dollar declined from the recent peak in early October, reflecting expectations of a less hawkish Fed in light of the more benign inflation outlook.[13]
Despite the weaker PMI outlook, many economists expect only a low probability of recession given strength in labor markets and real income growth.[14] The yield curve continues to be inverted with the spread between 2-year and 10-year Treasurys at -0.37%,[15] although the spread has risen from a low of -1.08% in July as the yield curve steepened. We continue to believe the shape of the yield curve shows that policy rates are in restrictive territory and we are most likely at or near the end of the current Fed hiking cycle with the Fed likely to be in a holding pattern until something “bad” happens that drives the growth outlook materially lower necessitating rate cuts.
We continue to believe inflation is unlikely to accelerate meaningfully from here although further downward pressure on commodities and tradeable goods prices may be required to push inflation significantly lower from here given the underlying positive trends in core inflation and wage growth. In Q3, cross-asset volatility returned, causing risk premia to rise with the risk-free rate. The most important factor in risk appetite remains the inflation outlook and attendant monetary policy expectations. We believe that while inflation may not decelerate immediately to the Fed’s 2% target, it should remain broadly under control and in a reasonable range, implying only modest downside to markets absent a significant negative geopolitical event.
We remain convicted that companies operating in the areas of decarbonization and coastal restoration should benefit from numerous tailwinds in the years to come. Jacobs Engineering (NYSE: J) is expanding its water infrastructure and climate adaptation work, recently creating an Americas Coastal Resilience Director role spearheading the company’s growth strategy to support clients in addressing growing risk to coastal communities and infrastructure from climate change and sea level rise.[16] Jacobs Engineering stock has been a strong performer, returning 14% year-to-date and 92% over the last five years.[17] We believe that companies positioning themselves to provide cutting edge market-based solutions for the climate challenges ahead will be attractive investments as these secular themes continue to play out in markets.
Footnotes:
[1] See below table citing ETF performance calculations using Trading Economics data, https://tradingeconomics.com/united-states/inflation-cpi
[2] See below table providing S&P 500 sector performance data.
[3] See https://tradingeconomics.com/vix:ind
[4] See https://www.cmegroup.com/markets/interest-rates/stirs/30-day-federal-fund.html
[5] See https://tradingeconomics.com/world/composite-pmi
[6] See https://tradingeconomics.com/china/nbs-general-pmi, https://tradingeconomics.com/united-states/composite-pmi, https://tradingeconomics.com/euro-area/composite-pmi, https://tradingeconomics.com/japan/composite-pmi, https://tradingeconomics.com/brazil/composite-pmi
[7] See https://tradingeconomics.com/united-states/non-farm-payrolls, https://tradingeconomics.com/united-states/average-hourly-earnings-yoy
[8] See https://tradingeconomics.com/united-states/non-farm-payrolls, https://tradingeconomics.com/united-states/average-hourly-earnings-yoy, https://tradingeconomics.com/united-states/jobless-claims-4-week-average, https://tradingeconomics.com/united-states/continuing-jobless-claims
[9] See https://tradingeconomics.com/united-states/u6-unemployment-rate
[10] See https://tradingeconomics.com/united-states/core-inflation-rate
[11] See https://tradingeconomics.com/euro-area/inflation-cpi, https://tradingeconomics.com/euro-area/core-inflation-rate, https://tradingeconomics.com/euro-area/inflation-cpi
[12] See https://tradingeconomics.com/china/inflation-cpi, https://tradingeconomics.com/china/core-inflation-rate
[13] See below chart from S&P Global as well as table citing ETF performance calculations using Trading Economics data.
[15] See https://fred.stlouisfed.org/series/T10Y2Y
[17] See https://www.dividendchannel.com/drip-returns-calculator/
COUNTRY GOVERNANCE RESEARCH COMMENTARY
Israel declares war on Hamas following devastating terror attack
The scale of the terror attacks staged by Hamas inside Israel on October 7th, killing at least 1,400 civilians and soldiers and taking hundreds of people hostage, made it the deadliest day for the Jewish people since the Holocaust. That Hamas was able to carry out such an audacious plot without any warning was a shocking failure for Israel’s vaunted military and security services. In response, Israel has declared war on Hamas and unleashed a devastating campaign from the air and on the ground in the densely populated Gaza Strip with the aim of eliminating Hamas’s military capacity and ending their rule of the territory. Hamas has spent much of their time in power constructing a vast network of underground tunnels making the Israeli military’s task much harder and increasing the peril for innocent civilians in Gaza. There has been skepticism of the Hamas run health ministry’s numbers on casualties, including from President Biden, however there has been no dispute that thousands of Palestinian civilians have already been killed in what Israeli officials have said will be a long conflict. President Biden and other allies of Israel have stressed Israel’s right to defend itself following Hamas’s barbaric attack, but they have also emphasized the importance of following international law and minimizing civilian casualties. Recent airstrikes on the Jabalia refugee camp that Israel said hit an underground bunker and killed a senior Hamas commander, also caused significant civilian casualties and have led to increased calls for a ceasefire or humanitarian pause, though for now Israel has refused and insisted that its response is proportionate and justified.
Implications: Coming in the midst of Russia’s continuing war on Ukraine, beyond the immense human suffering, there are worries about the economic fallout from another prolonged conflict. Up to this point the fighting has been largely contained to Gaza, and the impact on the global economy has so far been limited. However, whether that continues to be the case will depend on avoiding an escalation into a broader regional conflict.
Russia’s war on Ukraine continues as risks of a stalemate grow
While a new war has erupted in the Middle East, Russia’s unprovoked invasion of Ukraine has continued, and there are fears that as the world’s attention shifts that global support that has been instrumental in keeping Ukraine in the fight will dry up. Ukraine has struggled to make progress in its counteroffensive, and as winter takes hold hopes for a significant breakthrough have faded. While Ukraine has had successes, such as disrupting Russia’s ability to operate in the Black Sea and carrying out strikes on targets far from the front-lines, the expectations of Ukraine’s leadership and their Western backers have so far not been realized. The commander of Ukraine’s armed forces, Gen. Valeriy Zaluzhniy, in a recent interview acknowledged the risk of the war devolving into a stalemate, and he says Ukraine will need a dramatic upgrade in its capabilities if it is to reverse the deadlock. As Zaluzhniy describes, technological advances have meant that both sides have such visibility over the battlefield that any concentration of forces can be quickly targeted and destroyed making any advance difficult and costly for troops on the offensive. Russia, which has shown a willingness to endure tremendous casualties, is recently reported to have lost thousands of troops in a failed attempt to encircle the shattered front-line city of Avdiivka.
Implications: Despite the hardships Ukrainians remain committed to victory and expelling the Russian invaders. Russia is betting on diminishing Western support, Putin recently said that Ukraine would die in a week if Western aid dried up. Supporters of Ukraine have to hope that opponents to additional Ukraine aid in the US Congress don’t prove him right.
A smarter way to protect the Amazon: Indigeous leaders and biodiversity credits
Deep in the Colombian Amazon, a group of indigenous leaders are working to protect and restore the rainforest using innovative techniques funded by carbon- and biodiversity credits.
We talk to Drea Burbank, founder of grassroots conservation-focused B-Corp Savimbo, which is helping create a new market for authentic, verifiable credits that can channel funding direct to the people stewarding the forest.