ESG Equity Monthly Report | May

09 May 2022

 

Sustainable ETF Monthly Report: Key Takeaways 

Inflation remains high, several economies experienced first quarter weakness, fighting continues to rage in Ukraine and no consensus exists as to the economic outlook beyond a few months.[1] By the time you read this, Putin will have given his May 9th speech and we may have a better view of how desperate his measures may become. [2]

The market recovery experienced over the second half of March reversed in April with broad market indices sinking by high single-digit percentages, although Europe held up relatively well, perhaps buoyed by Ukrainian success on the battlefield.[3]

In March the Saturna Sustainable ESG Equity HANZero™ Equity UCITS ETF fell 6.05%, demonstrating good downside protection versus broad global indices. Positive returns were led by Johnson Matthey, which leapt 18% on the last trading day of the month as US conglomerate Standard Industries took a 5% stake.[4] Long a leader in catalytic converters, Johnson Matthey failed in its attempt to pivot to electric batteries, and we were evaluating whether to keep the investment.

ESG leader Danone also had a strong month.[5] Vestas Wind reported another weak quarter as cost overcame any benefit from increased orders.[6] During the month we exited the investment in Kering on China risks and an expectation that the asset inflation that has supported its business is likely to flag in coming years.

Please note that all performance figures are showing net data. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product.

 

Macro Outlook

Looking at the United States, the yield curve moved sharply higher over the first quarter, raising the discount rate at which investors estimate the net present value of the future cash flows generated by any given investment.[7] Our Sustainable ETF has greater Technology exposure than broad global indices. That’s relevant to recent performance of the ETF because many Technology companies are considered “long duration assets” since their valuations are supported by cash anticipated to be generated over an extended time horizon, captured by what analysts refer to as the “terminal valuation.” Raising the discount rate lowers the net present value of future cash flows and, thus, the value of the investment.

In Q1 the effect of rising interest rates was exacerbated by the higher valuations of Technology stocks relative to other sectors and concerns over what effect the tapering of the pandemic and return to work might have on demand for various products and services. Conversely, those companies with lower valuations and/or resilient demand, performed better. That said, there was a significant reversal of this trend in the second half of March and we are now evaluating a rebalancing given the outlook for potentially higher energy prices and inflation, met by a more aggressive central bank response.

 

Sustainable ETF Performance Table (As of 30.04.2022) 

 

1M

3M

6M

YTD

12M

SI

Saturna Sustainable ESG Equity HANzero™ UCITS ETF (Acc)

-6.05%

-9.61%

-15.01%

-16.80%

NA

-13.79%

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 30/04/2022Performance 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 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.

Learn more about our Sustainable ETF here.

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