IMPACT COMMENTARY
I grew up in a family where community service was a lifelong pursuit. My mother worked for the EPA, my father in public health, one sister for children with learning disabilities and another in public health like our father. So, as a twenty-five-year veteran of the financial services industry, one might say I am odd girl out.
I am a bit tongue and cheek as I sat on Boards of non-profits, but I wanted to do something that was not advisory, more impactful. So, when the chance came up to join a firm where I could use my business skills to create change on the critical environmental and social justice issues of my time, it was obvious. A couple conversations later and I was all in. So here I am, doing what I know is important, what I know business must be involved in to change, and what my family smiles everyday knowing I am doing.
The first thing I needed to figure out was how do I think I can best be involved in making change. And not just me as I knew one thing for sure, it wasn’t just about me as it is only in numbers that these issues will change. I would articulate my view as the following:
CAPITAL + ADVOCACY = IMPACT
This is in line with what we do here at Newday and what I will be leading in several areas of personal importance the first being Diversity, Equity and Inclusion. Why is this area so important in my mind? It is more than the social justice issues; it is just bad business. If you were Chairman of the Board of the company I was running and I told you I was not going to consider over 50% of the human talent you would fire me, or you should. The data shows that while there have been advancements in low level hiring there have been limited in leadership roles and capital access.
This month we celebrate Women’s History Month, so I wanted to share some thoughts and statistics regarding my cohort. Women are 50.8% of the population, women account for 47,7% of the global workforce, and women are 50.2% of the college-educated workforce. Because education is related to income more than half the degrees awarded in the 2016-2017 academic year were to women.
Yet astoundingly, only 27% of women are managers and leaders, and 48% occupy entry-level roles. This is a loss not just for women but for these companies where research shows that diverse teams make better decisions. We will invest in companies that are at the forefront of change and opportunity for all underrepresented communities – racial, sexual preference and ethnic as well as gender. We will also reflect the world we want to see by creating a firm that is diverse, but equally inclusive that provides an environment that encourages all voices be heard and all differences welcomed.
Another issue is wealth accumulation through entrepreneurship. The difficulty getting capital was made clear to me when I saw women hedge fund portfolio managers try to raise money. It is also clear in the data regarding capital allocation in the venture capital arena.
Formation of new businesses as we know requires seed capital. Let’s look at one important source of capital for startup companies and entrepreneurs, Venture Capital. They are responsible for some of the best-known companies founded since 1979 including ones such as Tesla, Bed Bath and Beyond, Whole Foods, Apple and Starbucks. As a percentage of public US companies founded in that period, Venture backed companies represent 43% of the total number and 57% of the total market capitalization. They are not the largest source of capital, but they are invaluable as they bring to their entrepreneurs an ecosystem filled with mentors, strategists, and specialists in other operating areas.
The National Venture Capital Association’s data shows that female founded companies received only 2.7% of dollars allocated in the US by VC’s in 2019. But there are a growing number of Impact VCs working to change the landscape.
What I will do here with the Newday team is allocate capital to companies who are leading the way in Diversity, Equity, and Inclusion in all areas. I am excited as the companies below are pushing forward on all areas of diversity in their upper echelons of management and leadership. Below are some of our investments currently in our DEI portfolios:
Apple (APL)
Led by a member of the LGBTQ community. More than 60% of retail team members and 50% of retail leadership in the U.S. are from underrepresented communities. Women represent 35% of global team members and 38% of global leadership. Since 2020 Apple has pledged $100 million as a part of its racial justice and equity initiative.
Adobe (ADBE)
Minority CEO. Women represented 33.5% of employees, 26.1% of leadership roles, and 37.7% of new hires in 2020. Taking Action Initiative (TAI) to increase women in leadership positions to 30% globally and double representation of US Black and underrepresented minorities leadership positions by 2025.
Target (TGT)
Since 2019, Target has increased representation for POC in exempt roles by 15% and women of color in similar positions by 23%, while increasing the number of promotions for POC by 54%. Their workforce is close to or above 50% women at all levels.
Walgreens Boots Alliance (WAG)
Black Female CEO. A top 50 ranked employer of HBCU students & graduates and has numerous recognitions for being a top Minority, Disability, LGBTQ+, and Veteran employer. Board is 75% White,16.7% Black or African-American, and 8.3% Hispanic or Latino with five of the 12 board members being women, as well as having LGBTQ+ representation.
Affiliated Manager Group (AMG)
AMG has a gender diversity of 40% across management positions, surpassing the asset management industry average and overall, more than half of AMG’s corporate workforce is female. 50% of their Independent Directors are female.
This is just one portfolio and there will be many other aspects of Newday’s efforts in DEI that we will be rolling out in the coming months. As we have asked before, please reflect on engaging with Newday Impact on our quest to change the world. There is work that each of us can do to support a better world. So what can you do from here?
Our World Needs Help. There has never been a time where the world is in greater need. Join us as we build a movement where our decisions lead to a better world. Sign up for one of the future forums and be part of collaborative action with other like-minded individuals, families, and institutions.
We Want to Create More Bridges. Each year, more than $500 billion is contributed to non-profit organizations and NGOs. Admirable, but we want to build the bridges to Action. The global investment market encompasses more than $65 trillion. Even a small percentage of profits committed to addressing the world’s most pressing issues will make a meaningful difference to organizations that are solving problems. Bridging this gap is the work of Newday Impact and our partners and we invite you to invest in Newday’s ESG and impact portfolios.
Help Us Make it Happen. Collaboration amongst non-profits, government leaders, and corporate and individual citizens is critical to solving these crises. Join us and lead by example. Newday Impact is committing a percentage of revenues to our non-profit partners so that they can continue to do the work that they and only they can do to fix our world. Please support our non-profit partners like Climate Changemakers, Jane Goodall Institute, Georgie Badiel Foundation, Outright International, and EarthEcho International.
We Need Your Influence and Advocacy. Whether you’re a supporter of social justice, diversity equity & inclusion, or environmental issues like ocean health, we’d like to help you amplify your support in changing the world for the better. Through your support, we can raise awareness and even stimulate others to act in supporting the cause that you care most about whether that be through one of our charitable partnerships or one that you already support.
As a supporter of a more sustainable and just world, on behalf of all of our presenters I welcome the opportunity to discuss with you opportunities for collaboration that will not only support this important cause, but enhance the work that all of us are doing to help our world.
CAPITAL MARKETS COMMENTARY
Overview
This month’s Scotsman’s’ note covers quick thoughts on U.S. equity markets, the latest Ukraine news and considers longer-term scenarios resulting from the war. It then discusses content of President Biden’s State of the Union address. We then briefly review the U.S. Federal Reserve testimony, before assessing the backdrop impact to the Energy sector.
- Quick thoughts on U.S. equity markets.
- Ukraine, Russian invasion, world reaction, longer-term scenarios.
- U.S. State of the Union (SOTU), Ukraine, Covid, and Economy addressed.
- Fed Chair Powell testimony. 25bps coming.
- Energy impact and outlook.
Daily volatility has increased, but stocks have rallied on major headline news.
- In the past few days, stocks reached market lows following the “invasion announcement” and swiftly rallied on both the 2/24 invasion and 2/28 SWIFT reprisals.
- Despite this, retail investors are more bearish than back in March 2020.
- It seems to us that a lot of bad news is priced into U.S. equities. The chart below highlights the performance of 3 major US equity indices.
- As investors, we would be buyers.
Ukraine, Russian invasion, world reaction, longer-term scenarios
Washington and the world have watched in amazement as President Putin went ahead with the invasion of Ukraine. President Zelensky and the Ukrainian people have stood up to the Russian invaders and won the support and admiration of all. Nearly every nation participating in the global trading system has isolated Russia, including stopping its access to the SWIFT global payments system. However, payments for oil and gas still appear to be permitted. These complex rules with some payments permitted and others prohibited are likely to cause pause by the major clearing banks as they will need to be sure that prohibited payments are negated.
With the current backdrop unfolding. We believe Putin has miscalculated on several fronts. First, the attacks on random apartment buildings, the size of the Russian military buildup, the bullying, the bellicose speeches in the days leading up to the invasion were designed to sow fear among Ukraine’s population leading to a short war and a quick surrender. We think it is also reasonable to assume that Putin also expected Zelensky to run. Neither happened. Putin now has a fight on his hands, both militarily and in the court of world opinion. Even if he succeeds in taking over Ukraine, Western nations appear intent on backing a resistance movement that will cause havoc and be an expensive proposition for Putin to maintain control the country. At Newday Impact, we estimate the cost of the invasion to Russia on a daily basis. Our best estimate is somewhere between $5 billion to $20 billion on daily basis. What we do know, is the Russian Central Bank has $630 billion in reserves, so please do the math. If the war goes on for any appreciable time, other Russian assets will have to be sold for the country to stay afloat financially. Further, there is the Ruble currency which has depreciated significantly. The Ruble will likely need to be shored up. Russia’s Central Bank will buy gold but we suspect there will be a run on its banking system.
Second miscalculation, in our opinion, is the Ukraine invasion has awakened NATO and all of Europe to the threat Putin’s Russia poses. I spent my teenage/college life studying the events in Europe during the 1930s leading up to WW2 (as well as the war in Europe). My dad was a rear gunner in a Lancaster bomber. He was only 17 and lied to get into the Royal Airforce. He survived and told me many stories. Unfortunately, I see so many parallels currently. The good news is the appeasement of Hitler by Chamberlain which led to WW2, is not being repeated by US, UK, EU, NATO and certainly not the Ukraine.
One of the outcomes of this war will be a significant increase in defense spending among NATO members including the US. Germany has announced a €100 billion fund to increase defense spending. Chancellor Olaf Scholz was treated to a standing ovation in the Bundestag for doing so. An arms race has begun, and it is going global. This could turn into a catastrophe for Russia. A run-on Russia’s banks would not be a surprise and if the conflict goes on long enough, years of preparing the Russian economy will be for naught. Wars are expensive and who will buy what Russia must sell if their banking and markets are already off limits? The global defense sector is likely to be a beneficiary, though the emphasis will change on the types of spending, i.e., rare earths. Cyber security and drone spending will increase dramatically as the cyber world (particularly drones) is the new battlefield, along with space (may the force be with all of us).
U.S. State of the Union (SOTU): Should be an interesting one…
President Biden delivered his first SOTU address before a joint session of Congress. What a week ago looked like a partisan defense of economic and Covid policy was framed by the Russian invasion of Ukraine. This speech gave President Biden an opportunity to rise above the sharp partisan divide and express support for the incredible heroism of President Zelensky and the Ukrainian people. Overall, we believe President Biden did a great job. The President requested emergency aid for Ukraine including releasing oil from the U.S. strategic reserve and outlined the success he has had at working with global partners to isolate Russia using tools that range from blocking orders to the German decision to withdraw from the gas pipeline.
Unfortunately, President Biden has near record low approval numbers 37% (according to the most recent ABC News and the Washington Post). Despite good economic data ranging from strong consumer spending to low unemployment; but inflation is the issue that haunts Democrats as they head towards the midterm election. The President sighted his accomplishments including the bipartisan infrastructure bill, to the large Covid relief package passed in the early days of his Administration, but acknowledged his unfinished agenda led by the demise of his Build Back Better (BBB) legislation. Going forward, Biden will be under pressure from the progressive wing of the party to give a strong endorsement to a large domestic spending bill modeled after BBB, but that will surely bring out the worst of the partisan divide in Washington.
Fed Testimony: Rate increase is coming
March 2nd and 3rd, U.S. Federal Reserve (Fed) Chair Powell went before the House Financial Services Committee and the Senate Banking Committee to give his semiannual report on monetary policy. Testimony by the Fed Chair always gets a lot of attention from markets and the two days before Congress were no different. Investors always pay a great deal of attention to any signal the Chair might provide to the direction of interest rates as the Fed is only two weeks from its meeting of the FOMC and the anticipated rise in rates.
In recent weeks there has been a vocal minority of Fed Watchers who have talked about a 50bps increase rather than 25bps. Market actions in the coming days will undoubtedly be part of the FOMC decision, uncertainty created by the war in Ukraine will be a factor with respect to the plan to have a 50bps increase. We think a 25bps increase makes more sense and is required.
Energy: Diversification is long overdue…
In response to the Russia/Ukraine situation, there have been a lot of soundbites about diversifying energy sourcing away from Russia, which seems overly late to us. Citigroup assessed Europe’s energy bill at $300bn last year, with 2022 expected to cost $1.2tn, $200bn higher than their January estimate. German Economic Minister, Robert Habeck is already proposing the extension of coal usage, with Mario Draghi also suggesting that Italy could reopen coal plants as the energy outlook is rethought. Olaf Scholz is proposing two new LNG terminals, while various ministers are evaluating the extension of nuclear power generation.
These are all near-term solutions, but they are in no way quick or effective fixes to an ongoing problem. Finance Minister Christian Lindner declared, “Renewable energy is the energy of freedom.” At Newday, we view this is providing a bid to clean energy stocks, even as sanctions allow the continued purchase of Russian natural resources. Putin’s actions have allowed a window of opportunity for fossil fuels to provide the necessary bridge to renewable energy, something that should have been effectively planned in the first place.
Scotsman’s Final thoughts…
This is a “Made in Russia” crisis, and only President Putin can bring it to an end. Who knows his end game is only in his mind. What price the people of Ukraine, and indeed the rest of the world will pay is up to the Russian leader.
For you history buffs. Reflect on Operation Barbarossa. But do so from Russia now being the aggressor. Mud and a quagmire. It bogged down the Wehrmacht. Putin’s army is already dealing with this. Blocked main roads to the capital cities. I hope, this may be ‘a bridge to far” …
ESG RESEARCH COMMENTARY
As we celebrate Women’s History this month, we are reminded of the innumerous women throughout our nation’s history who were courageous to fight for their rights and the rights of the oppressed. While many held essential roles caring for their children and family members, many also rose to change what society over the centuries dictated to them. They defended their countries during wartime, with some even leading them. They healed the sick and wounded, and invented new technologies that transformed how our world operates. They excelled in sports and created inspiring music and art that we all enjoy today.
This year, the National Women’s History Alliance has denoted the theme for Women’s History Month as “Women Providing Healing, Promoting Hope.” This theme is “both a tribute to the ceaseless work of caregivers and frontline workers during this ongoing pandemic and also a recognition of the thousands of ways that women of all cultures have provided both healing and hope throughout history.”
One such caregiver was Dr. Rebecca Lee Crumpler, the first African American woman to earn a medical degree. Born in 1831 in Delaware, she was thought to be influenced and inspired by her aunt, who raised her and invariably cared for sick neighbors and those around them. Without any formal education, Rebecca Crumpler first became a nurse in Massachusetts for eight years before being admitted in 1860 to the New England Female Medical College, which later merged with Boston University’s School of Medicine in 1873. After graduating in 1864, she became the only Black woman to graduate from that college and earn a medical degree. To put this into perspective, at the time, according to historian Vanessa Northington Gamble, there were 54,543 physicians in the United States; 270 of them were women (all white), and 180 were African American men.
Dr. Crumpler devoted her life to relieving the sufferings of others. After the Civil War, she and her husband moved to Richmond, Virginia, to do missionary work with formerly enslaved people who would have otherwise had no access to medical care. Here she also became more conversant and focused on diseases dealing with women and children. She did all this despite the intense racism and sexism she faced. She later moved back to Boston to close out her career and, in 1883, wrote a book called the Book of Medical Discourses based on the journals she kept during her medical practice. Her book is one of the very first medical publications by an African American author, and according to Scientific American magazine, Dr. Crumpler’s experiences and book were the precursors to the famous What to Expect When You’re Expecting book (1984).
While little is known of her from our history books, her writing contributions give us insight into her life and work. Dr. Rebecca Crumpler died in 1895 at the age of 64, but in 2020, 125 years after her death, headstones were finally installed over her and her husband’s grave due to a fundraising campaign initiated the year prior. Because her remarkable achievements were brought to light, the Virginia Governor declared that March 30, 2019, was “Dr. Rebecca Lee Crumpler Day.” Her name will now be known for her perseverance, dedication, and desire to assuage the sufferings of others in an era where few African Americans, let alone Black women, were able to break ceilings and make pioneering contributions to medicine. According to a study done in 2019 by the Association of American Medical Colleges, over 36% of physicians are female, but only 2% identify as African American women.
Let us always remember and be encouraged by Dr. Rebecca Lee Crumpler and the countless contributions that women, many of them unsung heroes, who improved the world we live in because they listened to their internal voices and rose to action to help ease the suffering of others, restore their dignity, and ultimately shape the way society viewed and treated them.
Country Governance Research Commentary
by Matthew Zimmer, Head of Governance Research
Removal of Russia from our portfolios
Sanctions and capital controls in response to Russia’s invasion of Ukraine have rendered the Russian equity market uninvestable. Recognizing this new reality MSCI has announced that Russia will no longer be included in their indexes. Consequently, as of February 28, our portfolios will also no longer have exposure to the Russian market.
Russia invades Ukraine and West responds with harsh sanctions
Hopes that there could be a diplomatic solution to reverse Russia’s threat to Ukraine were dashed, when Russia first recognized the breakaway republics in the Donbass region of eastern Ukraine and then launched a long feared full-scale invasion. In an angry speech, Putin again questioned the idea of Ukrainian sovereignty and cited as justification the need to “denazify” the country – a bizarre claim to make when Ukraine has a Jewish leader who was elected with over 70 percent of the vote in 2019. The war has unleashed widespread destruction across the country, but the level of Ukrainian resistance appears to have surprised the Russian troops. Thus far they have failed to take any major cities while suffering significant losses in both troops and equipment. The ferocity of Russia’s assault and the obvious lack of any justification has led western powers to impose some of the most sweeping sanctions ever placed on a large economy. Both Europe and the United States have agreed to block the Russian central bank’s access to its reserves, which has greatly limited the bank’s ability to prop up the ruble. On the first day following the move the ruble fell to all-time lows, forcing Russia to impose drastic capital controls that only served to further isolate its economy. Other sanctions include disconnecting major Russian banks from the SWIFT messaging system, export controls, sanctions on specific oligarchs and institutions, and even sanctions on Putin himself as well as hit top deputies.
Implications: The resilience of the Ukrainian people and the inspiring leadership of President Zelensky has drawn global support to their cause as a bellwether struggle for the cause of democracy and the rules based international order. However, with Russia’s advance having failed to meet its early objectives, Russia has begun resorting to indiscriminate bombing raids on population centers, tactics it has used in other conflicts. While this approach might provide Russia a pyrrhic victory, the Ukrainians have shown no indication that they will ever be willing to be subjected to rule from Russia.
EU can withhold funds in rule of law dispute with Hungary, Poland
The Court of Justice, the European Union’s highest court, dismissed challenges by Poland and Hungary to a European Commission rule that allows the withholding of funding from member states that fail to uphold the EU’s rule of law principles. Poland and Hungary argued that the regulation violated the EU Treaties, but the court found that the so-called “conditionality mechanism” was within the Commission’s power to protect the EU budget from rule-of-law problems that could negatively affect European finances. Poland and Hungary have both been involved in multiple disputes with the EU over accusations of democratic backsliding, and they could now face the possibility of having funds withheld. The EU has already frozen pandemic recovery funds worth 36 billion euros for Poland and 7 billion euros for Hungary. Brussels had agreed to wait for the ruling before making a final decision. Following the decision the president of the European Parliament put out a statement calling on the Commission to trigger the mechanism.
Implications: European Commission President Ursula von der Leyen has said they will review the court’s ruling before deciding on next steps. Observers believe action is more likely to happen in the case of Hungary than with Poland, which recently has made some conciliatory gestures. Hungary has parliamentary elections in April, and Prime Minister Orban is facing his strongest challenge in a decade from a united opposition. One opposition promise is to unlock EU recovery funds by resolving the country’s disputes with the bloc.
Hong Kong’s fifth Covid wave is its worst yet
Hong Kong’s fifth coronavirus wave has been its most challenging yet with the rapid spread of the highly contagious omicron variant. The city of 7.5 million people is currently the center of the worst outbreak on Chinese territory since the start of the pandemic. Hong Kong has followed China’s “dynamic zero covid” policy, which aims at getting local infections down to zero. However, the surge in cases has overwhelmed the government’s ability to maintain its policy of isolating infected patients and their contacts. For the first time since the onset of the pandemic, hospitals are beyond capacity. Up until this point, Hong Kong has had far fewer reported cases than in other major cities. The city, though, doesn’t have the capacity to eradicate the coronavirus through the kind of strict lockdowns that have been employed in mainland China. Beijing will not reopen Hong Kong’s border with the mainland until the city reaches and maintains zero Covid cases. At the same time, Hong Kong has also isolated itself from the rest of the world with harsh containment measures and the banning of almost all international travel. Strict covid restrictions and a crackdown on individual liberties following Beijing’s imposition of a draconian national security law, has dampened the countries attractiveness as a hub for international business.
Implications: Other similar cities, like Singapore, have shifted to a strategy of living with Covid with an emphasis on widespread vaccinations and testing. Hong Kong, however, no longer has the autonomy to follow a similar strategy. Chinese leader Xi Jinping has instructed Hong Kong’s government to prioritize controlling the virus “before anything else.” Given the current political climate on the island, the authorities have little choice but to follow suit.
Trucker protests for weeks paralyzed Canada’s capital
A rule that all truckers must be vaccinated to cross the US-Canada border sparked a protest that for 23-days paralyzed Canada’s capital of Ottawa. The parliamentary area of the city was blocked with heavy-duty trucks and thousands of protesters, who dubbed their action the Freedom Convoy, calling for an end to Covid health restrictions. The demonstration inspired similar protests across the country including a blockade that for seven days disrupted most of the U.S.-Canada traffic at Detroit’s Ambassador Bridge, which caused auto makers to curtail production at some factories disrupting about $300 million a day in trade. The blockade was ended when a court order was granted permitting officers to forcibly remove demonstrators and their vehicles. In an effort to end the disruption, Prime Minster Trudeau took the extraordinary step of invoking the Emergencies Act for the first time since it was introduced in 1988. Trudeau, citing the damage to the economy, said the protests were a threat to public order and posed a national-security risk. The emergency powers allowed the government to ban protests and take other steps such as commandeering tow trucks to help police remove demonstrators’ vehicles. The Act also allowed the government to target protesters’ assets to pressure them to leave the city’s streets. Over 200 financial accounts with a value about $3 million were frozen. By February 20, the police succeeded in driving out nearly all the protesters and their vehicles.
Implications: Trudeau faced criticism from civil-liberties groups and some Canadian politicians that the use of the Emergencies Act was an abuse of state power. He had initially sought a 30-day extension to those powers, but in a turnaround, he agreed to rescind his invocation of the Act and also unlocked the frozen accounts saying that with the protests having been dispersed the powers were no longer needed.
News/Events
Earth911 Podcast: Doug Heske on Choosing Stocks to Encourage Diversity, Equity and Inclusion
April 20th — Earth Week event with Commonwealth Club, Philippe Cousteau & Georgie Badiel
May 5 — World Water Day Gala in NYC
Disclosure
This commentary is provided for information purposes only and is not an offer or solicitation of an offer to buy or sell any product or service. Unless otherwise stated, all information and opinion contained in this publication were produced by Newday Funds, Inc. (“Newday Impact”) and other sources believed by Newday Impact to be accurate and reliable. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions of the financial markets, general investment strategy, or particular investments are not recommendations to clients and are subject to change without notice.