ESG bonds and bond funds gaining investors. Municipal and non-profit bonds for ethical and sustainable investors. Analyst likes 25 sustainable stocks that make you feel good while making you money. ESG stocks beating S&P by 45% this year! Plant-based meat alternative food products gaining big in popularity with important knock-on effects for food stocks. More…
PODCAST: ESG Bonds and Bond Funds, Stock Alpha, More…
Transcript & Links, Episode 19, November 22, 2019
Hello, Ron Robins here. Welcome to podcast episode 19 titled ESG Bonds and Bond Funds, Stock Alpha, More… for November 22, 2019—presented by Investing for the Soul. investingforthesoul.com is your site for vital global ethical and sustainable investing news, commentary, information, and resources.
And, Google any terms that are unfamiliar to you.
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Now to this podcast!
ESG Bonds and Bond Funds (1)
Usually, when we think of ethical and sustainable investing we almost always think about stocks. But for most investors who prioritize personal values in investing, ESG bonds should also be a significant part of one’s portfolio. So now let’s get a little more into that.
Incidentally, later in this podcast, I’ll talk more about some new ESG stock recommendations and about ESG stock alpha! That is, how terrifically well ESG stocks are doing!
One interesting but overlooked debt asset class for ethical and sustainable investing, particularly in the US, are non-profit municipal ESG bonds. Karen Hube in an illuminating article titled, Future Returns: ESG Investing in Nonprofit Municipal Debt provides insight into this. The article appeared in Barron’s PENTA pages.
In her article, Ms. Hube quotes Buck Stevenson, managing director, and portfolio manager at Silvercrest Asset Management Group in New York. She quotes him as saying that “Municipal bonds issued by small nonprofit groups working to bring about change in their communities can satisfy investors’ growing appetite for impact investing ideas while paying yields ranging from 4.5% to 6%…
Community hospitals, charter schools, and organizations providing mental health care and veterans services are among the groups that are typically structured as nonprofit organizations with 501c(3) status, and can issue debt to raise funds for improvements, new facilities, equipment, and other needs.” End quote
And interest received by investors in this type of debt in the US is often exempt from personal taxes. So, real after-tax yields can sometimes be pretty good!
ESG Bonds and Bond Funds (2)
Another article on ESG bonds and bond funds is titled How Advisors Use ESG Bond ETFs by Lara Crigger on the ETF.com site. Ms. Crigger interviews several ESG analysts and portfolio managers to get their picks on ETFs comprised of ESG bonds.
She first quotes Johann Klaassen, EVP & CIO of Horizons Sustainable Financial Services. Mr. Klaassen likes the VanEck Vectors Green Bond ETF (GRNB), the Nuveen ESG U.S. Aggregate Bond ETF (NUBD), the Sage ESG Intermediate Credit ETF (GUDB), and the Invesco Taxable Municipal Bond ETF (BAB).
Another interviewee, Maya Philipson, Principal of Robasciotti & Philipson recommends the PIMCO Intermediate Municipal Bond Active ETF (MUNI).
Then, Scott Arnold, Partner & Portfolio Manager at IMPACTfolio talks about how he also likes the Nuveen ESG U.S. Aggregate Bond ETF (NUBD). And on a more riskier level, Mr. Arnold likes the new Nuveen ESG High Yield Corporate Bond ETF (NUHY).
ESG Bonds and Bond Funds (3)
Regarding riskier ESG bonds and bond funds, ETFtrends.com ran an article titled High Yield is Making Its Way into ESG Investing by Ben Hernandez. He writes “The search for yield is certainly a global phenomenon given the low rates offered in government debt around the world. It opens the doors for ESG funds to shine by offering high yield bond options as in the case of BlackRock’s iShares € High Yield Corp Bond ESG UCITS ETF (EHYD) and the iShares $ High Yield Corp Bond ESG UCITS ETF (DHYD).” End quote.
The article also has the following quote, “’As evidence increasingly shows that sustainability-related factors can help investors build more resilient portfolios, we are moving into an era where sustainable investing will be the standard way to invest,’ said Meaghan Muldoon, head of sustainable investing EMEA at BlackRock.” End quote.
It should be noted that applying ESG and sustainability criteria to high yield bonds does have a chance to improve the quality and performance of a high yield debt in a portfolio.
However, generally, high yield ESG bonds are still riskier than better-rated bonds.
ESG Bonds and Bond Funds (4)
For a deeper inside look into ESG bonds and bond funds of the high yield variety, I refer you to this article, Looking under the hood of an ESG-focused high-yield bond fund. It’s by Jeff Benjamin at InvestmentNews. Mr. Benjamin interviews Tim Leary, lead manager of the RBC BlueBay High Yield Bond Fund (RGHYX). The fund’s portfolio consists of high yield ESG bonds.
Mr. Leary commenting on his fund says that “The $54 million fund, which was launched in 2012, has an expense ratio of 58 basis points and a five-star rating from Morningstar. It has gained 13.7% from the start of the year, beating both the benchmark and the category average.” End quote
Additionally, he does have this warning about his and other high yield funds – euphemistically often called ‘junk bond’ funds. Quote, “The leveraged finance markets and high-yield markets in general are a risky place to invest because they tend to be more opaque.” End quote.
Furthermore, Mr. Leary says about his fund that “From a sector standpoint, we tend to be overweight financials, as well as financial services companies, cable and media names. Both from an ESG perspective but also from an overall view, we are materially underweight energy, metals and mining, and utilities.” End quote.
Incidentally, you should know that there’s a big debate about greenwashing when it comes to ESG bonds and bond funds, most especially of the high yield variety. So, talk to your advisor before investing in them.
Stock Alpha (1)
Turning our attention back to ESG stock alpha, John Csiszar outlines 25 Investments That Make You Feel Good While You Make Money. His article was reposted on Yahoo! Finance from GOBankingRates.
Most of his picks are typical of what you might find in most ESG stock indexes and funds. His picks are, in alphabetical order:
3M (MMM); Aflac (AFL); Avnet (AVT); Best Buy (BBY); Colgate-Palmolive (CL); Kimberly-Clark (KMB); Microsoft (MSFT); PepsiCo (PEP); Royal Caribbean Cruises (RCL); Salesforce.com (CRM); US Bancorp (USB); Voya Financial (VOYA); Weyerhaeuser (WY); Wyndham Hotels & Resorts (WH); Hilton (HLT); Beyond Meat (BYND); Vanda Pharmaceuticals (VNDA); Tesla (TSLA); Ecolab (ECL)’ Starbucks (SBUX); Fluor (FLR); Texas Instruments (TXN); UPS (UPS); International Paper (IP); Intel (INTC)
Stock Alpha (2)
The following two articles talk about how our trend towards vegetarianism and veganism are having on food industry trends and food-related stocks.
The first article is Americans, especially millennials and Gen Z, are embracing plant-based meat products by Sheril Kirshenbaum and Douglas Buhler on the GreenBiz site. These researchers find that “With debate over the impacts of meat production intensifying, we have been tracking U.S. attitudes related to plant-based alternatives through Michigan State University’s Food Literacy and Engagement Poll. The results reveal a growing appetite for plant-based meat among consumers, especially millennials and Generation Z…
Our survey found that during the previous 12 months, 35 percent of respondents had consumed plant-based meat alternatives. Of that group, 90 percent said they would do so again. Among those who had not yet eaten plant-based meat alternatives, 42 percent were willing to try them, while 30 percent of that group remained unwilling.
We also identified very significant generational differences in attitudes. Nearly half (48 percent) of respondents under 40 were already eating plant-based meats, while just 27 percent of those aged 40 and over had tried these products.” End quote.
The second post comes from Interactive Investor with the title Why this $5bn stock is not just for vegans by Rodney Hobson. Mr. Hobson focuses on the extraordinary stock alpha of Beyond Meat’s stock price. It soared from its IPO price of $25 to about 10 times that and is now back to around $80. His comment, “There is no shortage of rivals making vegan alternatives to meat and competition is likely to intensify. However, those companies with a solid base and proven track record are ahead of the game. Beyond Meat has been going for 10 years now.” End quote.
Stock Alpha (3)
And finally, here’s a story to cheer every ethical and sustainable investor! It’s by Brendan Coffey – who I’ve previously quoted talking about the remarkable stock alpha that ESG stocks are having this year. Writing for Forbes.com, his post is titled, ESG Stocks Are Beating The S&P By 45% This Year.
Yup, he says that “ESG funds are raking in the dough in 2019, pulling in $13.5 billion in new investor money in the first three quarters of the year, according to a recent report by Morningstar. But how is the ‘typical’ ESG portfolio doing? It’s handily besting the S&P 500, returning more than 32% to the S&P’s 22%, through October. That’s a 45% outperformance.” End quote.
So, as one famous stock market commentator says, ‘stay with the drill!’
Well, these are my top news stories and tips for ethical and sustainable investors over the past two weeks.
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A big thank you for listening.
Come again! And my next podcast is scheduled for December 6. See you then. Bye for now.
© 2019 Ron Robins, Investing for the Soul.