OCTOBER 2021 NEWSLETTER
CEO MARKET COMMENTARY
This Monday, the world celebrated Animal Welfare Day, and there could not be a more important time to be considering the importance of the intersection between man and wildlife. Given the tragedy of Covid 19, we all need to be more mindful of the challenges that exploding population and climate change are making on the world’s ecosystems.
On Tuesday, we hosted our second ESGX event with Dame Jane Goodall, one of the world’s most accomplished and distinguished conservationists and impact leaders, and advocate for animals and wildlife habitats. Over the course of many decades, she and the The Jane Goodall Institute have made extraordinary contributions in supporting wildlife conservation and animal welfare. If you missed the live event, you can access the recording at the link below.
The myriad of global environmental and social concerns are contributing to an explosion of assets in the ESG space. Global sustainable funds attracted a record $185.3 billion during the first quarter of 2021, up 17% quarter over quarter and far surpassing inflows for all of 2020. Overall, assets in ESG funds jumped 17.8% compared to the fourth quarter of 2020. Europe accounted for over 79% of total fund flows, although other regions are allocating more and more to ESG funds. According to the Morningstar data, 169 new sustainable funds were launched in the first quarter of 2021, down slightly from the record 215 launched in the last quarter of 2020. Europe-based funds numbered 3,444, vastly outpacing the United States with 409 and Asia ex-Japan with 237. Funds focused on environmental, social and governance (ESG)-related issues saw their combined assets climb to $2.3 trillion for their fifth consecutive quarter of growth, up 12% from the end of March.
Asset managers small and large have entered the ESG and sustainable investment space. Many have done so by introducing new funds, placing ESG labels on old funds, or have acquired smaller asset management companies offering ESG solutions. Consequently, many of these companies have been criticized for their lack of authentic ESG solutions by both consumers and regulators. This represents an opportunity for Newday as we have distinguished ourselves as a legitimate and authentic player in the space.
At Newday Impact, we have since our inception thoughtfully considered what compelling ESG and impact offerings should look like in order to deliver investment performance with deeper impact. Our alignment with our impact partners and collaborators sets us apart from every other ESG and impact manager in the industry.
By investing in Newday’s investment portfolios, you support the work of the Jane Goodall Institute, Earth Echo International, the Georgie Badiel Foundation, Women’s Sports Foundation, Ascend Athletics, and others. Newday contributes 5% of all company revenues to our impact partners, allowing them to do the work that they and only they can do supporting impact areas like Wildlife Conservation & Animal Welfare, Ocean Health, Clean Water, Gender Equality, and Diversity, Equity, and Inclusion.
This October, we are turning our attention to climate. Given the importance of acting with urgency to address the climate crisis and global warming, we are expanding our work supporting Climate Action.
First, we have introduced the Newday Global Equity Fossil Fuel Free portfolio, historically only available to institutional investors. This global strategy deploys the model for our Global Equity Fossil Fuel Free Institutional Portfolio which is sub-advised by RBC Global Asset Management, and excludes companies that are a part of the Carbon Underground 200. The portfolio which uses American Depository Receipts (ADRs) instead of Foreign Ordinary Shares in the institutional portfolio, is now available for a minimum investment of $100k by opening a Premier account at Newday, or can be owned through the Newday app for a minimum investment of $1000.
We have also introduced the Newday Active Climate Action portfolio. The investment strategy, constructed with our data partner Etho Capital (a leader in climate analytics), invests in companies that are leaders within their industry in reducing their carbon footprint. The portfolio in aggregate, is climate positive, with net negative GHG emissions.
I am also pleased to announce a new climate action partnership with Climate Changemakers. The 501c4 organization connects climate concerned citizens with simple effective action. More information can be found at www.climatechangemakers.org.
We have a number of important events that have been scheduled for October. World Youth Climate Action Day will be celebrated on October 23rd. With our partner Climate Changemakers, we will be introducing a campaign where all community participants can take the first steps in getting informed and involved in the climate action movement. The campaign will culminate with a special Election Day ESGX event on November 2nd, https://www.esgx.org/58-an-hour-to-save-the-world.html
CIO MARKET COMMENTARY: SEPTEMBER 2021
Overview
The economic rebound from last year’s deep recession is likely behind us and some of the extreme dislocations that resulted from the COVID pandemic may be moderating. While the global economy is slowing, growth remains robust, and consumers are well positioned to support the expansion. Bond yields remain unsustainably low, and we continue to prefer equities, as surging corporate profits should continue to push the bull market to new highs.
Growth moderates as global expansion progresses
The rapid spread of the delta variant is causing a rise in coronavirus infections throughout the world and challenging global economies. Global growth is moderating, though we should recognize that the economy was bound to slow following 16 months of extraordinary activity during which much of the slack resulting from last year’s recession was absorbed. Growth forecasts, for 2022, are now being dialed down, mostly because the consensus outlook implies an optimistic outcome with no room for error. Even with this slightly less cheerful view, the pace at which the global economy is expected to expand is still quite good and countries that suffered deeper recessions have the potential for an even stronger growth recovery. We forecast real GDP growth in many developed countries at close to 4% which is at least double the pre-pandemic norm.
Virus and other risks
The COVID virus remains a key risk to the global economy, especially with the delta variant being twice as contagious as its original Wuhan form and perhaps more resistant to vaccines. As a result, more stringent measures will be needed to contain the spread even as tolerance for further country lockdowns has diminished. Most governments are now turning to vaccine mandates and vaccine passports rather than forcing the lockdowns that were successful in curbing past virus waves. While it’s not yet clear how effective these new measures will be at curtailing infections, they should be less harmful to the overall global economy. Another critical risk for the global economy is the eventual shift in policy now that the economy has revived. Tremendous fiscal and monetary stimulus was delivered during the pandemic, but the need for this support is less obvious and a reversal would be a headwind for growth in 2022. One factor that could offset these risks, is that consumers have accumulated trillions of dollars in excess savings from the pandemic and can boost the economy through increased spending.
Inflation remains elevated, but may be peaking
Elevated demand and constrained supply chains have caused sharp price increases in a narrow set of goods and services that were sought after during the pandemic. Shipping costs have soared, used-car prices jumped, housing prices boomed, and computer chips have become difficult to source. On a broad basis, however, prices are now increasing at a normal rate in most areas of the economy, suggesting that the underlying trend to inflation is not out of line. Consequently, once distortions from the pandemic fade, we expect headline inflation to return to rates more in line with pre-pandemic levels. We are already starting to see some price pressures easing. For example, commodity prices are starting to ease, and shipping costs may be peaking. While we recognize a diminishing threat of too-high inflation, we do consider the possibility that inflation could run above normal levels for a few more years. Longer term, however, inflation could be lower than normal due to structural factors such as technological advancements and aging populations.
U.S. dollar wobbles within long-term downtrend
Support from a few short-term themes helped the U.S. dollar trade sideways so far this year within a tight 4% band relative to its peers. We continue to believe that the greenback remains in a longer-term downtrend and that further weakness will persist in the years ahead. The dollar’s decline should be most helpful for cyclical currencies that benefit from rising commodity prices and the global economic reopening, and we are particularly positive on currencies with central banks that will likely hike interest rates faster than the U.S. Federal Reserve.
Retailers slump on supply concerns
The S&P 500 Index declined 4.76% in September, to close at 4307.54. Retailers, in particular, were weak due primarily to a lack of inventory. While the S&P 500 finished the month in the red, this still represents almost a doubling from its March 2020 low and close to a 20% gain so far this year. The rapid increase in stocks has pushed global valuations to their most expensive reading since the late 1990s technology bubble. While the degree of overvaluation has been concentrated in U.S. equities for most of the latest bull market, many indexes outside the U.S. are now near or above fair value. At these valuation levels, profit gains will be critical to keeping the bull market alive. S&P 500 profits are on track for the most rapid recovery on record, already surpassing the pre-pandemic high, and are expected to grow at an above-average pace for the next several years. With profits having rebounded sharply, further significant growth may be more difficult to come by and we should not expect the pace of gains experienced so far this cycle to be repeated. Although valuations are elevated, we think stocks can still deliver modest returns given low interest rates, transitory inflation and sustained corporate-profit growth. We look for mid-single-digit gains in U.S. equities, with slightly better return potential elsewhere around the globe over the year ahead.
Scotsman’s Real Deal
Global economic growth has moderated but remains quite good and, in our view, the economic cycle is in its early to middle stages with several years of expansion ahead, assuming corporate profits remain intact. In the current environment, interest rates remain low, but central banks are now contemplating reductions in their bond-buying programs (reducing quantitative easing) before eventually raising interest rates. As the distortions from the COVID pandemic fade, we think that bond yields are likely to gravitate higher at a gradual pace. We would remain overweight stocks as we continue to believe stocks offer better upside return potential. The easy money has been made. We as investors, are focusing our portfolios on high quality companies, with a proven record of earnings growth, in the belief that investors will pay a premium for these stocks.
ESG COMMENTARY
Climate Action – One Carbon At A Time
While much of the industrial revolution created a great deal of societal benefits, it has also brought about significant negative changes to our environment. While changes in climate have been measured across the extent of our historical record, today’s shifts are of a magnitude and rapidity which far exceeds the ability of our societal and natural ecosystem to adapt.
Modern climate change is the direct result of human activities, particularly the burning of fossil fuels for electricity, heat and transportation, and is the driver of built-up greenhouse gases (GHG) into our atmosphere. Carbon dioxide makes up the vast majority of GHGs and is the leading cause of excessive heat being trapped close to the earth’s surface and is significantly affecting our land, water and atmosphere.
It is estimated that since the beginning of the industrial revolution, the global average temperature has risen by 1.1°C and is the equivalent amount of energy of 4 Hiroshima bombs detonated every second. One hundred companies in the world have been responsible for 71% of the global GHG emissions that cause global warming since 1998, according to The Carbon Majors Database, a report published by the Carbon Disclosure Project (CDP). We need collective action to reverse this trend in order to save our planet, and that starts with a commitment to reduce our carbon footprint.
Through the efforts of the United Nations to combat the negative impact of climate change, the Paris Agreement was framed. It has become a landmark international accord, adopted in 2015 and aimed at calling all countries to reduce their GHG emissions to limit global temperature rise to 1.5-2°C, and to have net zero greenhouse gas emissions in the second half of the century.
While companies and investors can play a huge role in tackling climate change, more work is needed. That is why Newday Impact has partnered with Climate Changemakers, an inclusive group of volunteers that share a vision of building transformative power in their communities to catalyze government action to meet the urgency and scale of our climate challenge.
Please join us Tuesday, November 2nd for “60 Minutes To Save The World: From Advocacy to Climate Action” Webinar Registration – Zoom to learn more practical measures we all can take in just an hour a week to have a profound impact on global warming and make a real impact to affect positive change to our climate. Together we can make an IMPACT, one carbon at a time.