Weekly Email 01/25/2021

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Hello!

2020 was truly the year for Socially Responsible Investing (SRI). Sustainability funds saw the highest inflows of any thematic sector. Most people, especially younger generations, are saying responsible investing is a need, not a want. Luckily, the investment management community is answering their call. Today, we’ll break down just how popular responsible investing has become, how it benefits investors, and why it is such an important shift for our planet and our society. 

More people are interested.

According to a survey conducted by Morgan Stanley, 85% of individual investors are interested in sustainable investing. 95% of millennials expressed an interest. A Morningstar report found that 72% of the U.S. population expressed at least a “moderate interest” in sustainable investing. 

This interest translated into action: more than $20 BILLION flowed into ESG Focus, Impact, and Sustainable Sectors (according to Morningstar) in 2020. Sustainable investing now accounts for 33% of total US assets under management! 

New investment firms (that’s us!) have also joined the landscape. In 2010, the 10 largest investment companies held 70.6% of all sustainable investing assets. Today, those same firms manage only 38%. These new offerings are providing individual investors with a wide variety of investment options. 

The investments are performing better.

Historically, sustainable investing has been associated with lower returns. Investors were presented with an “either-or” situation: maximize returns or invest responsibly. Based on the performance in recent years, this is no longer the case. 

According to a study conducted by Amundi Asset Management, being a responsible investor between 2010 and 2013 tended to penalize both active and passive investment portfolios. Between 2014 and 2017, all three pillars of sustainable investing (Environmental, Social, Governance) were sources of outperformance in both the Eurozone and North America. 

This trend only solidified between 2017 and 2020. A research paper by Casey Clark, CFA, and Harshad Lalit, Ph.D. for Rockefeller Capital Management found that the ESG factor generated 0.5% excess annual return between 2010 and 2020. 

Responsible investing has become the obvious choice for both impact and investment performance!

This is a necessary step for our planet and society.

A company’s ability to adequately pay its executives, raise additional capital, and comfortably acquire other companies all hinge on the demand for their stock. As investors move away from irresponsible companies, we rob them of their ability to compete. These companies must adapt or fail, and adaptation in this scenario requires them to become more sustainable (a win for everyone).

One investor does not have the power to do this, in fact, even all of Hoskin Capital doesn’t have the power to do this on our own. That said, 33% of all managed assets is no joke. We are supporting a cause much larger than ourselves and seeing the benefits in real-time. 

Sustainability is contending with innovation.

A second theme rose to stardom in 2020: Innovation. Most famously championed by Cathie Woods and her company Ark Invest, the focus on innovative companies was introduced as a counter to index investing. Indices like the S&P 500 are well known for their “value traps”, which are stocks that appear stable and cheap relative to the general market, but continue to languish and provide underwhelming returns year after year. By focusing on innovative companies, Ark Invest’s ARKK was able to outperform the S&P 500 by more than 130% last year. 

Impact-oriented investors have a new dilemma: invest in an Innovation fund and loosen their sustainability criteria, or continue to invest in sustainable funds that, while they may outperform the market, do not compete with the Innovation thematic.

The portfolio of the future: sustainability X innovation.

When we started Hoskin Capital, we knew innovation and sustainability would be the driving forces of investment performance and impact. We developed our Environmental, Social, and Innovation (ESI) Nobility fund on this exact premise. We created exposure to each thematic separately using our Climatic, Diversity, and Disruption funds. Our goal is to provide an investment strategy that invests in innovative companies, but only if they meet stringent Environmental and Social criteria. 

To learn more about our investment funds and our process, check out Hoskin Capital in 10 Minutes.

The information flowing in about the investment trends of 2020 have reinforced our values and our commitment to our investment strategy. In the words of Larry Fink, CEO of BlackRock, responsible investing has become the “default setting”. As we transition into 2021, this trend is continuing to accelerate as the new U.S. presidential administration prioritizes climate change, societal support, and infrastructure rehab. This is only the beginning.

Tying it all together. 

Sustainability and Innovation will stand at the forefront of the investment management industry and will continue to take a leading role in investors' portfolios. As more institutional assets shift into these funds, performance will continue to improve and they will become more and more accessible.There is a problem though. Hundreds of mutual funds have rebranded to "ESG" in a massive greenwashing movement. Some of these funds may call themselves responsible, but their holdings don't reflect it.Is your portfolio participating in the sustainability X innovation movement? Are your investments as responsible as you think?

If you would like to learn more about your portfolio’s exposure, schedule a free Portfolio Review session with one of our advisors using our meeting link. We can hopefully provide some insight into your current holdings and available opportunities, no strings attached. 

Thank you for your attention!

Warm regards,

Nate Hoskin, CIOHoskin Capital