ESG Equity Monthly Report | July

06 July 2022

 

Sustainable ETF Monthly Report: Key Takeaways 

Continuing the trend established through the first five months of the year, global stock markets declined in June. A brief rally around the third week of the month - possibly sparked by the US Federal Reserve’s 75 basis point hike in the primary credit rate - quickly faded.[1] The aggressiveness of the Fed’s move may have temporarily quelled investors’ inflation fears but a more relaxed stance by the European Central Bank, despite equally high inflation numbers, implies a remaining risk that inflation expectations become self-fulfilling.

Earnings estimate resilience has improved the optics of stock market valuation as prices fall. Whether first half earnings continue to support current estimates will influence market performance for the remainder of the year. Recessionary concerns may cause executives to temper their expectations.

In June the Saturna Sustainable ESG Equity HANzero UCITS ETF slipped -7.64%, slightly better than broad global indices. Consumer Staples, Media and Pharmaceutical companies provided support during the month. With Unicharm, Unilever, Roche, Starbucks, and Wolters Kluwer all holding their own. Unilever, Roche and especially Wolters Kluwer, which derives most of its revenue from the United States, may be benefitting from the weaker Euro. Meanwhile, Technology and Industrial stocks such as Siemens, ST Microelectronics, NXP Semiconductor and Taiwan Semi led the declines.

Source of all data: Saturna Capital. Please note that all performance figures are showing net data. Past performance is not indicative of future performance.

 

Macro Outlook

In June, fears of accelerating inflation pushed the U.S. Federal Reserve to hike rates by 75 basis points, following a 50-basis point increase in May.[2] Federal Reserve Chairman Powell indicated the Fed accepts the risk of tipping the economy into recession, given it views “unanchored” inflation expectations as the far greater danger.[3] Meanwhile, the ECB has taken a more gradual approach for a variety of reasons, including Europe’s greater energy risk and the potential for shortages to impede economic activity on their own. Those risks have a been a major topic of discussion since the Russian invasion of Ukraine. ;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.

Bowing to the short-term reality of Europe’s dependence on Russia for much of its energy, at the expense of the reality of the long-term effects of climate change, the European Parliament voted to designate gas and nuclear as sustainable energy sources.[4] Naturally, a chorus of voices rose in opposition, including a vow by some countries to challenge the law at the European Court of Justice.[5] We recognize the sharp divide between nuclear proponents (no carbon emissions) and opponents (Three Mile Island, Chernobyl, Fukushima, what to do with the waste?) and do not expect there to ever be a meeting of the minds. Gas presents a different challenge, since it’s better than coal but still a fossil fuel. The European Commission attempted to thread the needle by stating the gas and nuclear will only be considered green if they are used to transition away from coal and oil. While the decision provides some clarity to the EU taxonomy, we expect the decisions of private and public sources of capital will be influenced strongly by climate change concerns.

 

Sustainable ETF Performance Table (As of 30.06.2022) 

 

1M

3M

6M

YTD

12M

SI

Saturna Sustainable ESG Equity HANzero™ UCITS ETF (Acc)

-7.64%

-13.92%

-23.77%

-23.77%

NA

-21.01%

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 30/06/2022Performance 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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