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ESG Equities Monthly Report | October

Sustainable ETF Monthly Report: Key Takeaways

  • Interest rates surged toward the end of September on growing concerns that inflation expectations may become embedded. Unlike the “good” rise in rates at the start of the year, reflecting renewed economic optimism with the vaccine rollout, the current increase may be linked to fears of supply chain disruptions persisting beyond initial expectations.
  • As a result, the buoyant equity market experienced through much of the year rolled over in September on weakness among highly valued technology stocks, pulling down broad indexes. Bucking the downward trend were banks, which may benefit from higher rates, and energy stocks as the oil price moved sharply higher in September.
  • The return on the Saturna Sustainable ETF was -5.31% in September, reflecting trends across global equity markets.
  • While underperforming in Europe, largely due to Spanish utility exposure, and the United States, our Asia-Pacific investments performed well, especially in Japan - Sony and Murata Manufacturing - and Australia - Atlassian.
  • From a sector/industry perspective, most were down, although we did enjoy positive selection within Consumer Discretionary, especially Retailing, Communication Services and Household Products. 

 

Macro Outlook

Perhaps no question attracts greater investor attention than the outlook for inflation and the potential risk that supply chain disruption continues to drive prices higher, while hampering economic activity, leading to the justifiably dreaded state of stagflation. We continue to believe that rising vaccine distribution and the development of new anti-viral treatments such as Merck’s molnupiravir will restore order to factories, supply chains and gauges of economic conditions such as the CPI. [1] While not our base case scenario, stagflation fears are exacerbated by high levels of indebtedness around world, whether caused by aggressive consumer borrowing, government policies to address the pandemic or overexuberance among China’s property developers. Investors are understandably wary. Regardless of how we created the current debt burden, higher interest rates, while desirable from the perspective of monetary normalisation, will inevitably lead to hardship for many, including investors over-exposed to heavily leveraged companies or exorbitantly valued technology stocks. For this reason, among others, our definition of sustainability includes financial sustainability, most often demonstrated by intelligent capital allocation leading to solid cash flows that can sustain a business without resorting to excessive leverage. 

Speaking of sustainability, of growing concern within the ESG community has been the issue of “greenwashing” as more and more funds engage in re-branding exercises that have little to do with pursuing sustainable investment practices. The recent kerfuffle concerning a major European investment manager’s implementation, or possible failure to implement, ESG considerations in funds marketed as sustainable illustrates the challenge faced by the industry and investors alike – how to know when an investment product’s ESG claims are bona fide? For this reason, we are committed to complete transparency in our stock selection process and holdings. Similarly, we support the goal of requiring standardised corporate reporting covering environmental and social issues. 

 

SESG Performance (As of 30.09.2021)

 

1M

3M

6M

YTD

12M

SI

Saturna Sustainable ESG Equity HANzero™ UCITS ETF (Acc)

-5.31%

NA

NA

-2.56%

NA

-2.56%

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 30/09/2021. 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. 

 

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