(Bloomberg) — Relying on a specific sector such as tech to build an ESG portfolio has exposed investors to unnecessary losses, according to Luke Barrs of Goldman Sachs Asset Management.
The focus on tech has been a “kind of lazy approach” in environmental, social and governance investing, said Barrs, GSAM’s head of fundamental equity client portfolio management in EMEA and Asia ex-Japan, in an interview.
“It just became an easy trade where you got exposure to these high growth businesses that were doing very well and you can mask them as kind of ESG,” he said. “Where actually, when we think about ESG, ESG should not be a sector specific determination.”
Instead, Barrs said GSAM is looking for “solution providers to environmental issues,” which includes areas like supply chains of electric vehicle makers, environmentally friendly farming and power usage for buildings. “Those are areas that I think are incredibly attractive long-term,” he said, declining to name specific stocks.
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ESG investors who are overweight technology stocks have had a sobering start to the year, thanks in large part to a more hawkish Federal Reserve. The Nasdaq 100 Index is down by roughly a fifth of its value, with heavyweights like Amazon.com Inc. losing even more than that.
And yet, a lot of ESG funds continue to rely heavily on tech. BlackRock Inc.’s iShares ESG Aware MSCI USA ETF, the world’s biggest ESG exchange-traded fund, counts Amazon among its three biggest holdings, along with Apple Inc. and Microsoft Corp. It’s down about 15% this year.
Much of the appeal of tech has been tied to its “quite limited carbon intensity profile,” Barrs said. And despite obvious social concerns associated with some tech giants, “for the most part these are technologies and businesses that can help solve some social issues,” he said. “And so there’s an easy way of framing that.”
Meanwhile, there are signs that ESG investing clients may be growing dissatisfied with some of the poor returns they’re seeing. Jean-Xavier Hecker, JPMorgan Chase & Co.’s co-head of ESG equity research, said in March that some ESG investors have started to worry about a “potential missed opportunity.” That’s as non-ESG assets such as defense stocks and commodity prices have soared.
At the same time, there are indications of a broader sense of indifference to ESG among regular savers. A recent survey by Charles Schwab found that 66% of U.K. retail investors don’t care whether their allocations are sustainable, and instead only focus on maximizing returns.
“Part of the reason you’ve seen material underperformance of some passive ESG solutions is they put deliberate screens and exclusionary frameworks in place to reduce exposure to, especially, carbon assets,” Barrs said. “There’s more flexibility or discretion an active manager can have to try and still build balance in a portfolio against the changing backdrop.”
Many investors are “very fee conscious and sensitive,” Barrs said, which favors passive strategies. But at some point, “people recognize the opportunity cost,” because a passive strategy may overlook risks, he said.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
