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ESG Equity Monthly Report | November

 

Sustainable ETF Monthly Report: Key Takeaways

 

  • There wasn’t much of a correction to holdings during October: After rolling over in September, major market indices around the globe - with the notable exception of Brazil - bottomed in early October, staging a strong rebound for the remainder of the month.  
  • Saturna Capital observed that in the US, technology stocks moved back to the fore, while Switzerland was the strongest performer among major European markets. Performance across Asia was mixed with ASEAN markets generally doing well, while India was weak and China lackluster. Japanese gains were dissipated for overseas investors by a weakening JPY.  
  • The Saturna Sustainable ESG ETF’s return was 4.10% in October, reflecting trends across global equity markets. 
  • The performance of holdings in Europe were good, with especially positive selection in Switzerland and Denmark, the latter led by global diabetes specialist Novo Nordisk. North American performance lagged major benchmarks, while in Asia-Pacific very strong performance from Australia’s Atlassian balanced a weak showing in Japan. 
  • From a sector/industry perspective, Technology accounts for the ETF’s largest exposure and made the greatest contribution, led by Software. Healthcare performed well because of our pharmaceutical exposure, while Consumer Discretionary was strong on US retailing, especially DIY stocks such as Home Depot. 

Source of all data: Saturna Capital. Past performance is no guarantee of future performance. Please note all performance is showing net data.

 

Macro Outlook

Perhaps the most obvious question to ask following the October rebound is, why? We experienced rising yields at the short end of the curve combined with flat to slightly declining yields at the long end, often referred to as a “bear flattening.” As the name implies, it’s generally not considered a supportive environment for equity markets. Concerns over tapering of central bank purchases and interest rate hikes in not-too-distant future explain the flattening but not why the equity market should rally and a stock such as Tesla, with nearly all its Net Present Value embedded in the terminal value (a value that can swing wildly with interest rates) should appreciate over 40% in one month and crack the trillion-dollar market capitalization level. [1] Can 100,000 cars ordered by Hertz really be worth that much to the company when Volkswagen sold 9.3 million vehicles in 2020 and has a market capitalization of €125 billion? [2]

Last month we discussed the risk of inflation being less transitory than hoped, leading to potential stagflation as supply chain disruptions and materials shortages dampen economic activity while prices continue to rise. [3] Broad economic statistics appear to reinforce that possibility as wages jumped in October. [4] Economists often view the “embedding” of inflation expectations as a self-fulfilling prophecy as workers demand higher wages to compensate for expected cost-of-living increases. A closer look, however, shows wage increases concentrated in some of the lowest paid segments of the workforce such as hospitality and fast-food workers. It’s no secret that, in the United States at least, minimum wage levels have trailed inflation and overall wage gains. We believe the pandemic has created the best opportunity in decades for lower paid workers to demand higher pay. 

 

Sustainable ETF Performance (As of 31.10.21)

 

1M

3M

6M

YTD

12M

SI

Saturna Sustainable ESG Equity HANzero™ UCITS ETF (Acc)

4.10%

1.12%

NA

1.43%

NA

1.43%

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/10/2021

Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Please note that all performance figures are showing net data. 

 

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