By Shelburne, Vermont Financial Advisor Josh Kruk
Nov 16, 2020
As Mortimer Duke said in the 1983 movie “Trading Places”, “Turn those machines back on!” Last week’s announcement of a forthcoming vaccine for COVID-19 had an understandably positive impact on markets, but much more so for stocks in energy-intensive sectors.
Visions of a summer and fall with more planes in the air, more SUVs barreling down the highway and more people out doing more things caused economically-sensitive sectors such as energy and industrials to outperform. As an extreme example, oil and gas bellwether ConocoPhillips rose 21% in a single week. Ford and General Motors each advanced almost 10%.
Reality and human nature impose certain practical limits. Someone in New York who wants to visit a relative in California is still getting on a plane. And no amount of Zoom meetings will replace the quality of a face to face interaction with a co-worker at the office.
Since we seek to minimize fossil fuel and carbon exposure in our environmental strategy, these same sectors are among the lowest weightings in our portfolios. We know that there will be times when a low-carbon portfolio will lag, and it’s possible we have entered one of those stretches now. However, a few other things are worth keeping in mind as well.
First, led by technology companies, the low carbon part of the market has performed extremely well over the last few years. Investors in environmentally-aware strategies have been beneficiaries of that.
Second, there is the value of diversification. There are ways to maintain exposure to the economic recovery without generating a large carbon footprint. Banks and real estate, both of which are significant elements of our portfolios, are examples of sectors that performed well last week. Our small-cap holdings could also fare somewhat better in a post-COVID world. These may not be enough to completely offset the impact of not owning the carbon belching sectors right now, but they do at least provide some ballast.
Third, and perhaps most important, is that we view investing as a marathon rather than a sprint. And we think the odds of winning this particular race are tilted pretty heavily in our favor. The drive toward a low carbon economy may have little effect on short term market results. But over the course of a decade or more, that slow and steady drip is likely to have a substantial and fairly predictable impact. In fact, to the extent traditional energy companies perform well over the next year or so, a quote from Mortimer Duke’s brother Randolph might actually provide the best advice: “Sell, Mortimer! Sell!”.
The Arctic is warming much faster than the rest of the planet. This short article illustrates some of the knock-on effects this creates for the indigenous populations in the area.
“Chronic hazards, such as slow increases in mean temperature or sea levels, or a gradual change in investor sentiment about those risks, introduce the possibility of abrupt tipping points or significant swings in sentiment.” – Fed Governor Lael Brainard, in the Fed’s biannual financial stability report. This marks the first time the U.S. central bank has specifically called out climate risk in this assessment.
$30.7 billion: The amount of money that has moved into sustainable investing strategies in the U.S. so far in 2020. With three months still remaining in the year, this already eclipses the previous annual high of $21.4 billion in 2019.