Record temperatures, devastating wildfires and freak hurricanes are in the news, but investment experts advise sticking to economic fundamentals when choosing climate-conscious investments.
August 23, 2023 13.04
Climate disasters seem to happen everywhere. It’s early summer in the Northern Hemisphere, and record temperatures sweep across parts of Europe and China. Then there were the Canadian wildfires that produced smoke that blanketed the United States. More recently, wildfires have devoured parts of Hawaii, and a few days ago, the first tropical storm to make landfall in California since 1939 caused devastating landslides and floods. The question investors are asking is whether the obvious changes affecting our environment and making headlines on a weekly basis should start to spur portfolio allocation.
For Andy Bown, portfolio manager of the $1.4 billion Impex Large Cap Fund (PXLIX), the answer is a resounding yes. He believes that sustainable investing is simply a smart investment given the reality of the changes that are taking place. Simply put, good investment acumen is motivated by going where we think the economy is going and And it is very clear that this investment must address climate changesays Bown, whose fund has a 5-year average annual return of 10.4%. Simply doing nothing is a very bad choice for the general population.
Separate the essentials from the hypesays Zach Johnson, chief investment officer of Whitefish, Montana-based Stack Financial Management. Johnson believes that investors should look for companies that are changing technology and products to address climate change and position themselves for a profitable future. Adding companies that incorporate the benefits of climate change into their long-term strategy can provide investors with a better chance of success. He also advises looking beyond common stocks and sticking to companies that have a profitable business in the long run.
According to Gavin Smith, head of equity and sustainable investment research at PGIM Quantitative Solutions, part of the $96 billion asset management arm of Prudential Financial, climate investing has gained momentum in 2020 as investors become more interested in climate-related decisions and look for complex causes. . Beyond reducing carbon emissions. Add to this the search for positive growth opportunities, How companies invest in electric cars and ways to reduce their carbon footprintgenerates higher cash flow and lower risk as demand for new products increases.
Environmental, social, and governance (ESG) investing has become popular in the past five years, according to Bown, but it still gets backlash from the political right. Presidential candidate and Florida Governor Ron DeSantis has signed a law banning politicians from investing public funds in ESG programs and banning the sale of ESG bonds. President Joe Biden first vetoed Republican-backed legislation in March that would have overturned his provision allowing money managers to consider climate change considerations in retirement plans.
The term has become a political football, Bown says. However, Bown says that caring about how companies respond and adapt to climate change is just about good risk management.
Impex, an asset manager focused on sustainable investing, is not the only company with funds earmarked for climate investment. Fidelity Investments recently launched a thematic climate change fund called the Fidelity Climate Action Fund (FCAEX) that focuses on investing in companies fighting climate change. Either directly through products or technology or indirectly through corporate strategy. The fund is up 10.6% year-to-date compared to 15.8% for the S&P 500. iShares’ Global Clean Energy Fund (ICLN) has lagged by $3.5 billion year-to-date, down 19%, but last year 5 years ago, its average annual return of 14% has surpassed benchmarks according to Morningstar.
Industrial stocks are well positioned to weather the coming weather storm. Johnson chose Quanta Services (PWR) and Dover Corp. (DOV), two industries that are diversifying their services, which Johnson sees as key to future success. Quanta provides electric power, renewable energy and telecommunications infrastructure services. According to Johnson, 52% of Quanta’s total 2022 revenue of $17 billion will come from infrastructure solutions and 22% will be derived from renewable energy. Expanding into renewable energy sets the Texas company on a path to long-term success. So far this year, Quanta shares are up 43%.
Dover, an $8.5 billion Illinois-based manufacturer, has evolved from a traditional cooling technology company to diversify its services and focus on clean energy. Dover now has a clean energy and fuels sector and a climate and sustainable technologies sector. The company moved into manufacturing aluminum in the beverage manufacturing sector, as aluminum is more recyclable than plastic. Shares of the company are up 4% so far this year.
As for other industrial stocks, Bown favors Trane Technologies (TT), another industrial company whose shares are up 19% so far this year. Trane provides carbon-neutral residential and commercial HVAC services with headquarters in Ireland and operations in the United States. Bown refers to his $7 billion order book which isA healthy demand for a product that will continue to position the $16 billion company (Revolutions) for success.
Baun’s other choice is the HVAC distributor Ferguson PLC (FERG). The law to curb inflation is likely to have a positive impact on the growth of the $28.6 billion company, as the UK-based company also cooperates with chipmakers, electric cars and biotechnology facilities. Stocks traded on the New York Stock Exchange are up 23% year-to-date.
Industrial companies diversifying are strong bets, Smith says, but utility and materials stocks can also be strong. However, climate-conscious investors should look at stocks holistically. A low-carbon company is a positive thing, but make sure the company isn’t harming biodiversity or the environment through heavy water use. Risk-averse investors should stick to low-carbon stocks, while investors who accept a riskier portfolio should start looking for changing products and technologies.
“There is a lot of capital available to companies associated with sustainable solutions, but make sure you do your homework”Johnson says.
*Note originally posted on Forbes USA
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