Ahh, 2020. We really can’t wait for you to just leave. Soon enough. We now enter the home stretch-last quarter of the year. When so much uncertainty surrounds us with the pandemic, having a market which is currently up over 4% in 2020 is somewhat reassuring. We all know there will be up years and down years, but one would have to think with businesses shutting down, unemployment near 10% and work from home protocols in place, this would have been one of those down years especially with a increase of 30% in the market in 2019. That being said, for the 3rd quarter we saw the DJI 30 up 7.75%, the NASDAQ up 9.97%, the S&P500 up 7.93%, the US aggregate bond market up about 1% and even Gold up 6.94%.
If anyone (not including Sustainvesters) is on the fence still when it comes to sustainable investing well, perhaps it’s time to get off the fence. From the top down we can see the sustainable indexes outperforming in 2020. The more well-known green index, MSCI KLD 400 Social ETF (symbol: DSI) is so far up 6.51% in 2020. Comparing this to the general market index of 500 companies (S&P500 which is up 4.05%), the more sustainable option is up more than 2.00% for the year over the S&P. If we dive a little deeper into this, we see that the energy sector is an extreme laggard this year once again. The index Energy Sector Fund (symbol: XLE) which holds companies like Exxon and Chevron is down 50.12% this year. Yes, you read that right, down 50%. Comparing it against the Invesco Clean Energy ETF (symbol: PBW) which is up 77.56% in 2020, one wouldn’t be short of just astonished at the difference here and also proud to be invested more sustainably.
Perhaps there is some hope for future generations? Lately, we do hear clients mention the disconnect between these venture backed tech companies and what is happening with local businesses going through such rough times. We agree. Whether employees are rehired OR the business owners simply shift to a new career remains to be seen. Companies that were either already part of the remote living world like Peloton, PayPal, Apple, Adobe, Docusign, etc. have seen their businesses explode in growth. They were already engrained in this new economy, but it just so happens that their growth projectile went from a 10 year horizon to 6 months. This is most likely baked into the stock values. What this means to restaurant and hotel employees, I am not sure, but I think it does show us that change and adaptation can and will happen, even if we are not in favor of it.
It would have been understandable for this covid initiated market volatility to disrupt sustainable investing’s growth trajectory, but based upon trends with assets continuing to come into SRI, it is promising. Companies that value and retain their employees and protect their brand reputations during this recession may also have competitive advantages in an eventual economic recovery.
The Chipotle Mexican Grill versus McDonald’s comparison couldn’t be any more clear in terms of a high ESG ranking firm versus one struggling to be reputable. One is up 49% this year. The other up just 11%.
Heading into the last quarter of 2020, we am cautiously optimistic. For one, we must assume that the country’s leadership is in better hands. But secondly, as we slowly inch closer to a vaccine being established consumers and businesses alike should become more and more hopeful that something closer to “normal” nears, whether in the spring or summer of 2021. If there are major hiccups along the way, we will again see dips but must keep a long term, bird’s eye viewpoint and be sure your asset allocation matches your unique life. Being 100% in stocks for someone who is retired most likely doesn’t fit their risk profile or timeline. We all shall celebrate when this historic event passes. Until then, carry on as you can.