ESG Equity Monthly Report | September

20 September 2022

Sustainable ETF Monthly Report: Key Takeaways 

Central Bank commentary on macroeconomic factors, primarily inflation and interest rates, continued to drive equity market performance and the message was not what stock investors wanted to hear. At the US Federal Reserve’s annual Jackson Hole Economic Symposium, Chairman Powell disabused observers of the notion that the Fed was preparing to pull back on its rate hike strategy.[1] Pointing to the far greater risk of inflation expectations becoming anchored, requiring even more dramatic action, Powell made clear that the Fed will remain aggressive until it sees clear evidence inflation is not only diminishing but also fully under control. [2]

Meanwhile, European data showed accelerating inflation, largely due to soaring natural gas prices driven by Russia’s criminal invasion of Ukraine.[3] In the Eurozone August inflation rose to a record 9.1%, unlike the US, where inflation has decelerated largely due to falling oil prices. Nine countries registered double-digit inflation, while the Baltic states of Latvia and Lithuania saw prices rise over 20%. Overall energy prices rose at a debilitating 38.3% year-on-year. [4]

In August the Saturna Sustainable ESG Equity HANzero™ UCITS ETF fell -6.29%. Only a handful of stocks managed a positive return during, including Walt Disney, insurance firm Chubb. Limited and US retailers Tractor Supply and TJX. Tractor Supply originated, as the name implies, serving rural customers with their farm needs. Over the years it has developed a larger suburban footprint serving “gentlemen farmers” and home garners. TJX’s discount apparel approach is well suited to the inventory disruptions that have plagued retailers with the ebbs and flows of consumer demand. Given weak markets, most stocks in the portfolio declined during the month, led by Canadian Software firm Open Text, which we have subsequently exited, GSK and its spun-out consumer division Haleon, Dassault, Adidas, and others. Our overweight exposure to Europe versus the United States was again a drag on ETF performance.

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

Given its greater energy independence, buoyant job market and, one might argue, money still sloshing around from various COVID stimulus programs, the US Federal Reserve has more aggressively raised rates than the European Central Bank, which faces weaker economies hampered by the previously discussed energy travails, as well as stretched national balance sheets among certain members.[5] Stronger growth and higher rates have had the inevitable effect of driving the USD higher versus major currencies. The DXY dollar index stands at the highest level in the past 20 years, at rough parity with the euro and a remarkable ~$1.15 to the British Pound, while it takes around ¥140 to buy one USD.[6] Such an environment might generally be considered a boon for European/Japanese exporters with locally based costs. Unfortunately, for the Europeans, energy is mostly imported, and the soaring costs are diminishing any currency advantage. In Japan the energy situation may be slightly better, but an ever-shrinking labor force hampers productive capacity.[7] What of the world’s largest exporter, China, which has also seen its currency sink against the USD? Drought has reduced electricity production leading to factory closures, while Chengdu in Sichuan Province has become the latest major city to face COVID lockdown.[8] For now, it appears the only exporters to benefit are those shipping out oil & gas.

 

 

Sustainable ETF Performance Table (As of 31.08.2022) 

 

1M

3M

6M

YTD

12M

SI

Saturna Sustainable ESG Equity HANzero™ UCITS ETF (Acc)

-6.29%

-7.76%

-13.82%

-23.87%

-23.34%

-21.12%

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/08/2022Performance 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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