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The ultimate guide to responsible investing – Corporate Knights Magazine

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Illustrations by Kyle Metcalf

When it comes to investing for most people, the goal is to make money, not save the world.

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Nevertheless, sustainable or responsible investing (whichever term you prefer) has hit the big-time, particularly around the theme of climate change.

Michael Baldinger, head of impact investing at UBS wealth management, which manages more than US$4 trillion in assets, claims that sustainable investing is now the fastest-growing asset class at scale in the world.

It’s hard to argue with the numbers. The Global Sustainable Investment Alliance says there is a US$30 trillion pot of sustainable investments across various themes as of 2018, growing at about 12% per year. A lot of that growth is coming from pension funds and other institutional investors signed up to the UN-backed Principles for Responsible Investment, whose members control US$86 trillion.

Financial markets are driven by two powerful emotions: greed and fear.
As the outgoing governor of the Bank of England, Mark Carney, puts it, “Companies that don’t adapt [to the low-carbon economy] – including companies in the financial system – will go bankrupt without question. [But] there will be great fortunes made along this path aligned with what society wants.”

To wit: the top five coal companies in the U.S. have all declared bankruptcy since 2016, and Apple is now bigger than all the oil and gas companies on the S&P 500 combined, in large part because they have earned negative returns over the last decade, even after accounting for dividends.

Carbon-intensive companies are suffering because the alternatives are not just cleaner but cheaper. Renewables are now cheaper than coal in two-thirds of the world’s countries, according to Bloomberg New Energy Finance. BNP Paribas estimates that oil needs to come down to US$10 a barrel to be competitive with electricity-driven transport. This does not mean fossil fuels are going away tomorrow, but it does kill the growth story. For oil investors, the market’s realization of this inevitable decline could make the coal horror show look like Bambi.

This increasing speed of the energy transition is part of the reason why investors representing US$11 trillion in assets have made public their plans to divest from fossil fuels.

Perhaps more telling is that beyond these public declarations, many of the biggest investors in the world are selling off their fossil fuel holdings and loading up on green assets. For example, without any fanfare the $200 billion Ontario Teachers’ Pension Plan has dialed down its fossil-fuel equity holdings to just 1%. On the upside, the $306 billion Caisse de dépôt et placement du Québec (CDPQ) has grown its green investment book to $30 billion, earning commercial returns along the way, according to outgoing chief executive Michael Sabia.

Just in case anyone was in doubt whether sustainable investing is really about making money, the vampire squid of investment banking, Goldman Sachs, showed up this December pledging US$750 billion in financing over the next decade to profit from the climate transition and inclusive growth.

While economics are shifting in favour of sustainable investing, so is public sentiment. Call it the Greta effect if you like, but most people are no longer comfortable with the idea that their retirement investments may be helping to set the world on fire.

Andreas Utermann, chief executive of Allianz Global Investors, which manages US$600 billion, says, “Clients have changed their tune. They have said we need to take this more seriously, and that has sharpened the minds of asset managers.”

Despite all this action among big investors, it appears small investors are getting left behind. If you add up the assets of the 130 funds on offer in Canada that declare sustainability intentions in their official documents, it is less than 1% ($12 billion) of total fund investments ($1.6 trillion). That’s an even smaller fraction than they were at in 2003, when Corporate Knights published its first guide for responsible investors. What gives?

It boils down to a belief many people still hold that sustainable investing is about sacrificing returns. The theory is that investing to make a return is hard enough, and if you add social and environmental considerations into the mix you are at a disadvantage. The trouble with this theory is that investing is like hitting a curveball, which is a pretty good metaphor for the world we live in. Putting on a sustainability lens gives the batter a better sense of the ball’s trajectory and increases the chance of making solid contact.

To make things easier, Corporate Knights scores all the equity mutual funds and ETFs available in Canada according to how well their holdings line up with established sustainability criteria and, where available, their three-year financial performance record. While we’re not promising any home runs, the 36 funds listed below were deemed the worthiest for taking a swing at.

Eco-Fund Methodology

Funds are scored according to (1) three-year net return percentile rank (50%), (2) weighted sustainability rating percentile rank based on analysis of their holdings* (40%), and (3) fund manager intention to manage the fund according to responsible guidelines (10%). If the fund is less than three years old, its final score is based on #2 and #3, which are grossed up proportionately to 100%. Funds that score in the highest or second-highest quintile among category peers receive a five-tree or four-tree rating respectively.

* Holdings that are red-flagged automatically receive a 0% CK Sustainability Rating Score. Red-flag holdings include companies that are classified in the Corporate Knights database for one or more of the following criteria: companies blocking climate policy, farm animal welfare laggards, companies causing severe environmental damage, companies causing deforestation, forced and/or child labour, severe human rights violations, illegal activity, controversial and conventional weapons, civilian firearms, tobacco, thermal coal, for-profit prisons, access to nutrition laggards, access to medicine laggards, digital rights laggards, investor climate laggards and gross corruption violations.

Sources: Corporate Knights Research, Fundata, Responsible Investment Association, Refinitiv, InfluenceMap, Business Benchmark on Farm Animal Welfare (BBFAW), Norges Bank Investment Management (NBIM), Chain Reaction, Know the Chain, NZ Super Fund, Stockholm International Peace Research Institute, American Friends Service Committee, Access to Nutrition Initiative, Access to Medicine Initiative and Ranking Digital Rights.

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Turkey’s CHP Vows $100 Billion of Direct Investment If Elected – BNN Bloomberg

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(Bloomberg) — Kemal Kilicdaroglu , the leader of Turkey’s main opposition party, promised to bring $100 billion of direct investment if elected to power in the elections scheduled for June next year.

“There will be at least $100 billion of direct investment in the first three years of our government,” Kilicdaroglu said in Istanbul on Saturday, speaking at an event at which the CHP unveiled some of its economic, political and social policies.

He also said his government would secure an additional $75 billion investment in the first three years, from pension funds and wealth funds abroad, among other resources.

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The event dubbed “The CHP’s Second Century Vision” included speeches from Kilicdaroglu’s top economic aides and prominent economists, including Massachusetts Institute of Technology professor Daron Acemoglu. 

Faik Oztrak, CHP spokesman and deputy chairman responsible for economic policies, said the party would appoint a central bank governor who is “respected by the whole world.” The governor’s aim would be to permanently bring down inflation to single digits, he said. 

Incumbent central bank governor Sahap Kavcioglu is frequently criticized by the opposition over his failure to rein in inflation. Annual consumer prices in October accelerated to over 85%, the highest in almost a quarter century. 

Under pressure from President Recep Tayyip Erdogan, who is fixated on economic growth ahead of elections, the bank has cut its interest rate for four straight meetings, lowering it to 9% last month.

Read more: Turkey Slashes Interest Rate in Line With Erdogan’s Demand

Erdogan is a self-proclaimed enemy of high borrowing costs and he has fired three predecessors of Kavcioglu for clashing with him on monetary policy. Acemoglu said inflation would be lowered only through “normalization” in monetary policy and by fixing policies on interest rates.

“Turkey’s company and bank balance sheets also need to improve. If companies and banks have negative balance sheets they can’t make new investments. And Turkey needs significant new investments,” he said. “This will again be fixed with the right monetary policy, right financial policy and resources.”

©2022 Bloomberg L.P.

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Is Fomo the new greed when it comes to investing? – Financial Times

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If investors insist on trying to time their moves in stock markets, said Warren Buffett almost 20 years ago, they should be fearful when others are greedy, and greedy only when others are fearful.

It is good contrarian stuff. And the time-honoured depiction of markets in the permanent push-pull grip of these two animal spirits has an enduring appeal because (nuance and caveats aside) it does actually explain a lot of market psychology quite neatly. The difficulty arises, as now, when greed and fear start defining themselves as the same thing.

In the parsing of the FTX collapse — and of a string of other recent debacles that seem ominously comparable as phenomena of the loose money era — fear of missing out (Fomo) has repeatedly emerged as the critical ingredient in the investment build-up before the fall. Fear, in this usage of the word and in the context of the FTX and wider crypto run-up, was creating something that looked an awful lot like irrational exuberance. This exuberance, in turn, was fuelling something that behaved from a market standpoint an awful lot like greed does during its periodic stints at the wheel.

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As the Fomo narrative has it, investment money (much of it under the auspices of large, seemingly respectable funds) thunders collectively into particular assets (in many cases, with minimal due diligence) not because it necessarily believes in the underlying opportunity but because the rewards are presented as unmissable and the consequences of delay or scepticism are somehow scary.

The idea is not novel, even if the acronym is. Similar thought processes have featured before in earlier crises. In 2007, Citi’s Chuck Prince famously stressed the need to keep dancing as long as the music was playing: a freely chosen indulgence presented as an unquestionable obligation.

So is the current version of Fomo just greed in disguise? It is tempting to think so or, at the very least, conclude that the word “fear” here describes a more discretionary and easily surmountable dread than, say, the fear of loss, value destruction or worse. The casting of Fomo as a genuine fear demands evidence that there is some price to be paid for missing out (of the sort shops experience, for example, during panic-buying prompted by public alarm). Self-recrimination for a bonanza skipped, or the wrath of a dissatisfied investor, do not quite count.

During the past half decade of tech-centric investment, however, Masayoshi Son’s SoftBank has led the way in instilling a more legitimate set of Fomo concerns for certain investors. When the first of his Vision Funds launched in 2017, the $100bn vehicle was explicitly designed to create a new genre of tech investment.

It did this (or planned to) by using its scale not just to identify potential winners but to shower them with enough funding to ensure that, on metrics such as market share, they probably would be. This implied guarantee of dominance, however flawed, set a tone that would resonate: if investment is not about prospects but sure things, then Fomo is not greedy but wise.

With tech and crypto Fomo now in some limbo, a much larger and more complex version now sits on the horizon in China, and could dominate corporate and financial investment next year. A good number of fund managers say they are already positioning themselves for a short-term “Fomo event”. A relatively quick reopening of China or a sharp relaxation of zero-Covid rules is a change that no global or Asia-focused investor can afford to miss. The feeding frenzy could ramp up very swiftly.

But the longer-term Fomo trade relates to geopolitics, and to the way in which US and Chinese industrial policies have set themselves sufficiently at odds with one another to make some form of decoupling look more inevitable. Behind the rhetoric of the US Chips Act and the Made in China ambitions are geopolitical shifts that could eventually oblige more and more companies — in the US, Europe, Japan, South Korea and elsewhere — to make some kind of choice between the two blocs. In some cases, this might take the form of redesigned supply chains and other “friendshoring” investments to allow dual-track manufacturing and sales.

For others, though, there may be serious pressure to rethink being in China at all. And business leaders and their investors should perhaps consider that there may be valid reasons to miss out on the world’s greatest gross domestic product growth engine. This, truly, will put the “f” in Fomo: the question is whether the fear is strong enough for companies to push back before it happens.

leo.lewis@ft.com

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15 Most Famous Investment Gurus of All Time

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In this article, we will take a look at the 15 most famous investment gurus of all time. If you want to see more of the most famous investment gurus of all time, go directly to 5 Most Famous Investment Gurus of All Time.

Investment gurus do not have a monopoly on wisdom. The markets have changed over time and investment gurus who have done well in one period may not do as well in another period.

With that said, investment gurus do have a lot of experience in the market. Many have invested in the markets for decades and some are successful to a point that they have become billionaires.

Different Types of Investment Gurus

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There are different types of investment gurus ranging from value investors to quantitative traders.

Billionaire Warren Buffett is arguably the most famous value investor guru. Buffett’s style is to buy high quality companies with competitive advantages and hold on to them preferably forever. Buffett tends to only buy things he understands and he would prefer to buy stocks at fair to attractive prices.

Billionaire Jim Simons is arguably the most famous quantitative guru. Simons style is to use computers and algorithms to buy and sell thousands of companies with holding periods ranging from very short to forever.

Many of the most famous investment gurus in history have done more than invest well.

Some investment gurus like Benjamin Graham have written books that have inspired other investors. Others like David Tepper have created firms that manage substantial amounts of capital. Another investment guru, John (Jack) Bogle of The Vanguard Group, has helped pioneer a form of investing with The Vanguard 500 Index Fund Admiral Shares (VFIAX) that has saved tens of millions of people substantial fees.

In terms of the most famous investment gurus of all time, each one has invested in the American stock market. One reason for this is that the United States has been the largest economy in the past eight decades. With the American capitalistic system, the United States stock market as a whole has done well in the long term given the growth in the American economy. Even today, the United States is the largest economy by nominal GDP and its stock market is worth more than any other country’s stock market.

Many of the investment gurus on our list have also been long term investors who buy quality companies with competitive advantages and hold them for a long period. Given the growth over time in the United States economy, some of the leading companies that the gurus owned have done really well as a result. With their wealth, many investment gurus have become leading philanthropists.

In terms of the future, it is likely that many of the future investment gurus will also be American given the continued strength in the American economy. The United States continues to lead the world in innovation and its financial system remains the world’s best given the status of the U.S. dollar as the global reserve currency.

2022

2022 has been a challenging year for the markets as high inflation has caused the Federal Reserve to raise interest rates six times. Although inflation has shown signs of potentially peaking, the Federal Reserve has signaled it will raise interest rates further albeit at a slower pace than before.

Given the substantial rise in interest rates, the broader markets have declined and the investing climate in 2022 is different from the investing climate during the low inflation and low interest rate period before this year. Given the changes, it is important to realize that the markets can change.

Methodology

For our list of 15 Most Famous Investment Gurus of All Time, we picked 15 investors that several other websites also rank as investment gurus. We then aggregated the picks.

15 Most Famous Investment Gurus of All Time

15. Michael Steinhardt

Michael Steinhardt is regarded as one of Wall Street’s greatest traders in history whose firm, Steinhardt Partners, averaged an annual return of 24.5% between 1967 and 1995. As a result of his successes, Michael Steinhardt has a net worth of $1.2 billion according to Forbes. Michael Steinhardt is also regarded as a pioneer of the modern hedge fund.

14. David Swensen

David Swensen was an endowment fund manager for Yale University who was known for ‘The Yale Model’ which he invented with Dean Takahashi. Under Swensen, Yale’s endowment averaged an annual return of 11.8% from 1999 to 2009 which beat the market. As a result, numerous other endowments and institutions have tried to copy the Yale Model with many realizing only mixed success given that a big reason for Swensen’s outperformance was manager selection. Swensen ranks #14 on our list of 15 Most Famous Investment Gurus of All Time.

13. Philip Fisher

Philip Fisher is most famous for being the author of the book, Common Stocks and Uncommon Profits. Fisher is also known for being an early proponent of growth investing. Like Benjamin Graham, Philip Fisher was an inspiration to famous value investor Warren Buffett.

12. Peter Lynch

Peter Lynch is a mutual fund manager famous for managing the Magellan Fund at Fidelity Investments where he averaged a 29.2% annual return between 1977 and 1990. That was more than double the performance of the S&P 500 during the time period. Peter Lynch is also the author of the book, One Up on Wall Street.

11. John Templeton

John Templeton was an investor and fund manger who created the Templeton Growth Fund which famously averaged growth of more than 15% per year for 38 years. As a student of the father of investing, Benjamin Graham, Templeton was a contrarian investor who liked value stocks that were overlooked by investors. He was also one of the first investors to invest in Japan in the 1960’s.

10. Benjamin Graham

Benjamin Graham was an economist who is known for being the father of value investing. Graham wrote the book entitled The Intelligent Investor and is famous for being an inspiration to value investors Warren Buffett and John Templeton. Benjamin Graham was also a fund manager who averaged annual returns of around 20% from 1936 to 1956.

9. Charlie Munger

Billionaire Charlie Munger is the vice chairman of Berkshire Hathaway which is also a giant conglomerate in addition to being an investing fund. Like Warren Buffett, Charlie Munger is a value investor who believes in buying quality companies below their intrinsic value and holding them forever if possible. Berkshire Hathaway’s largest holding at the end of the third quarter was Apple Inc. (NASDAQ:AAPL) with a stake value of $123.7 billion.

8. Stanley Druckenmiller

Stanley Druckenmiller is the founder of Duquesne Capital which has a 13F equity portfolio value of over $1.7 billion at the end of Q3. Although Druckenmiller technically closed Duquesne Capital to investors in 2010, it still issues quarterly 13Fs. As of the end of September, the fund’s largest position was Coupang, Inc. (NYSE:CPNG) with a stake worth almost $324 million. While he has had great success at Duquesne Capital, Stanley Druckenmiller is perhaps best known for working for George Soros at Quantum Fund where they made $1 billion shorting the British Pound in 1992. According to Forbes, Stanley Druckenmiller is worth $6.4 billion. He ranks #8 on our list of 15 Most Famous Investment Gurus of All Time.

7. David Tepper

David Tepper is the founder of Appaloosa Management and the owner of the Carolina Panthers. After having headed up Goldman Sachs’ junk bond desk, Tepper realized substantial success given his career running Appaloosa Management where he became a billionaire. David Tepper is perhaps best known for his fund buying a substantial stake in Bank of America Corporation (NYSE:BAC) during the 2009 that made him a $7 billion profit. Appaloosa Management’s largest position at the end of Q3 was a $218.8 million position in Constellation Energy Corporation (NASDAQ:CEG).

6. Carl Icahn

Carl Icahn is a billionaire activist investor who is the founder of Icahn Capital. As an activist, Icahn sometimes goes on CNBC to explain his views on the market or to try to gain more support among a company’s board for his initiatives. Given his successes, Icahn ranks as one of the wealthiest people in the world with a net worth of $17.6 billion according to Forbes. Icahn Capital’s biggest holding at the end of September was Icahn Enterprises LP (NASDAQ:IEP) which was worth over $14.3 billion. Carl Icahn ranks #6 on our list of 15 Most Famous Investment Gurus of All Time.

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