Exciting new ESG ETFs hit market. See reviews here. Corporate Knights stock showdowns: Exxon vs Neste (energy) and Kimberly-Clark vs Cascades (paper). Low ESG performers promising to upgrade their ESG activities can potentially outperform high ESG stocks. Beyond Meat leading a craze in vegan meat replacements that has years to run with many investment opportunities.
Transcript & Links June 7, 2019
Hello, Ron Robins here. Welcome to my podcast Ethical & Sustainable Investing News to Profit By! for June 7, 2019—presented by Investing for the Soul. investingforthesoul.com is your site for vital global ethical and sustainable investment information and resources.
Now to this podcast. And Google any terms that are unfamiliar to you.
Also, you can find a full transcript, live links and bonus material to this podcast at this editions’ podcast page located at investingforthesoul.com/podcasts
First off, I’m going to talk about two new ESG ETFs: The Vanguard Global ESG Select Stock (NASDAQ: VEIGX) and the Xtrackers MSCI USA ESG Leaders Equity ETF (NYSE Arca: USSG)
The Vanguard ETF is written-up by someone I really admire and have posted works by him before. His name is Jon Hale of Morningstar. His insightful article was posted at Yahoo! Finance.
One of Jon’s main points is that this ETF is likely to be mostly comprised of low-risk ESG companies given that it’s manager, Wellington Global Stewards, manages a fund available for Europeans that has a similar risk profile. Also, for an actively managed fund, it is low cost with an estimated annual expense ratio of 0.55%.
Jon likes this fund, saying that, and quoting him, “the fund does have a lot going for it out of the starting gate, including low fees, a quality subadvisor, and what appears to be well-conceived approach to ESG. I expect successful asset-gathering over time.” He does have one concern though, saying that, and I quote, “One caveat I have about the fund is that while comanagers Mandel and Courtines have years of portfolio management experience, [this fund] appears to be their first serious dive into ESG investing.” Close quote.
The second ETF, the Xtrackers MSCI USA ESG Leaders Equity ETF has done something remarkable for an ESG ETF and that is in its first two months of trading—that is by May 29—it attained over $1 billion in assets, according to a post, titled, An Impressive Start For USSG ESG ETF, on the ETF Trends website.
Another difference about this fund that some of you might like is that compared to other ESG ETFs it screens out companies engaged in alcohol, weapons, gambling, and other controversial products or activities. You should realize that ESG ratings refer to company operations and almost never to a company’s end products or services. Hence, tobacco, alcoholic beverage, and even weapons companies, can still score high on ESG factors!
One other feature about this ETF and a possible reason for its terrific asset gathering performance in its first two months is that it has an annual management fee of only 0.10%! Now remember though, this is a passively managed fund tracking the MSCI USA ESG Leaders Index that includes 339 stocks.
Tim Nash over at Corporate Knights has another great stock showdown. He sought to find a greener energy replacement for Exxon, the giant US oil company, and found, Neste (on the Helsinki Exchange: NTOIY). Quoting Tim, “Neste is a Finnish oil refiner that is now redefining what an energy company looks like. Although it still earns most of its revenues from oil refining and gas stations, biofuels like renewable diesel are now the fastest growing part of its business, comprising half its total profits. Its biofuels are made from a combination of waste sources (animal fat and used cooking oil) and plant sources (rapeseed oil and palm oil).”
Continuing quoting him, he says, “If you’re looking to divest your portfolio from fossil fuels entirely, Neste may not be the company for you. But by showing the world how an oil and gas company can successfully transition into a renewable energy powerhouse, Neste wins this week’s Sustainable Stock Showdown.” Unquote.
Tim Nash has also done another recent ‘stock showdown’—this time Kimberly-Clark (NYSE: KMB) vs. Cascades (TSE: CAS), two companies prominent in disposable paper products.
Though some of you might not like the idea of investing in such companies, you can’t get away from the fact that our use of paper keeps growing despite the digital everything economy. Also, in a well-balanced all-weather portfolio, you can’t be too overweight in say, tech, and financials.
All industries have their ups and downs, and yes, tech has done incredibly well but given the current concerns with privacy, tariff policies, etc., who knows what the future will be. So, yes, boring companies in boring traditional all-weather industries that have good ESG credentials have a place in most portfolios.
So, Tim gives a wonderful overview of the disposable paper products industry—its pros and cons from environmental and other viewpoints—and how both companies are trying to do a better job on the issues he raises. Here are some quotes from his article, he says, that, “The forestry sector, in general, has a chequered past with impacts on biodiversity loss, climate change, and indigenous rights.”
Continuing, he says, “From an investment perspective, Cascades is a much smaller company than Kimberly-Clark and pays a smaller dividend. Cascades could see higher revenue growth from expansion into areas like 100% recycled food packaging, and may provide better growth over time as the anti-plastic wave picks up. Both companies have good sustainability scores, but I’ll give Cascades the win for this week’s Sustainable Stock Showdown.” Close quote.
Now, do you select investments based solely on excluding specific industries, such as weapons and tobacco companies? If so, Masja Zandbergen, head of ESG at Swiss investment firm, Robecco, argues in a post written by Joe McGrath in Expert Investor, that a portfolio made up of such investments shouldn’t be called sustainable. I agree with that if that’s the sole basis for portfolio selection.
Furthermore, if you want to screen out certain industries, that’s fine, but it’s also good to apply ESG criteria in selecting the balance of your investments.
Incidentally, Ms. Zandbergen, like many in the ESG-sustainable investment industry argues that—and quoting her, saying, “she believes that companies with low ESG scores should be encouraged to improve their behaviors, through engagement.” And that’s what we all want, and it makes financial sense too.
You might be aware of the several studies showing that companies with high ESG scores trade at a relative premium to companies with low ESG scores. However, did you know that low ESG scoring companies that prove to be on an upward trajectory in their ESG performance can make outsized stock price gains relative to the high ESG performers?
This in part explains why companies like Robecco often pick lower scoring ESG companies and engage with them to improve their ESG activities and thereby ride the wave of that company’s improved stock price.
In previous podcasts, I covered the rise of Beyond Meat. Well, its stock recently traded over $100—four times its IPO price! To me, this whole area of vegetable meat replacement food is terrifically exciting, offering new investment possibilities—and the media is onto it too! If you haven’t considered investing in this new industry, you just might want to.
As is often the case, celebrities often influence public taste—sorry for the pun!
A great example of media interest in vegetable meat replacement is Tom Metcalf’s Bloomberg article, titled, James Cameron Sees Global Salvation in Plant-Based Investing. James Cameron’s films have been immensely successful, grossing over $6 billion worldwide. Quoting the article, “[James and wife Suzy Amis] have increasingly focused their family office on plant-based investments, from an organic farm in New Zealand to a Canadian plant that makes protein concentrates from peas and lentils.” Unquote.
The article also gives some impressive US stats, saying that, and I quote, that, “Retail sales of plant-derived meat alternatives rose by almost 25% to an estimated $770 million in the 12 months ended August 2018 from a year earlier, according to a February report by Rabobank, while vegan alternatives to products such as milk, cheese and yogurt are estimated to ring up $4.1 billion in sales.” End quote.
For a good review article of this trend and other players in this industry see the Greenbiz post by Shana Rappaport, titled, It’s ‘impossible’ to ignore the world of alternative proteins.
For stocks to invest in, vegfaqs.com, suggests Beyond Meat (NASDAQ: BYND), Ingredion Incorporated (NYSE: INGR), Bunge Limited (NYSE: BG), AAK (STO: AAK), SenzaGen (STO: SENZA) and SIMRIS (STO: SIMRIS).
On this edition’s podcast webpage, you can find bonus information and links on investing in this exciting new sustainable industry. Go to investingforthesoul.com/podcasts and scroll down to this edition.
So, these are my top news stories and tips for ethical and sustainable investors over the past two weeks.
Again, to get all the links or to read the transcript of this podcast and sometimes get additional information too, please go to investingforthesoul.com/podcasts and scroll down for this edition.
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Come again! My next podcast is scheduled for June 21. Bye for now.