Displaying items by tag: equities

While politics have made ESG a controversial topic recently, there’s no denying the fact that its popularity is still soaring. That was made abundantly clear with the release of the Index Industry Association’s (IIA) sixth annual global benchmark survey, showing a surge in ESG benchmarks worldwide. According to the survey, the total number of indexes climbed internationally by 4.43% over the prior year, with ESG indexes worldwide increasing by 55%. However, the bigger news was that fixed-income ESG indexes surpassed equity ESG indexes for the first time. In fact, fixed-income ESG indexes increased by an unprecedented 95.8%. This breaks the previous record of 61.09% last year. While equity ESG index growth was slower, it still grew at a high rate of 24.15 percent. Muni indexes had the strongest year for non-ESG fixed income, rising 10.86%. Rick Redding, IIA’s CEO, said the following concerning the survey: “The index industry continues to meet the needs of the marketplace by creating innovative solutions. Highlighted again this year by record growth in ESG, index providers are empowering investors with the ability to define, track and better understand an ever-broadening range of financial markets, sectors, investment styles, and asset classes.”

Finsum:A recent index survey revealed that fixed-income ESG indexes have surpassed equity ESG indexes for the first time.

While many market strategists have noted the recent failures of the 60/40 model portfolio, one investment manager still sees value in the portfolio model. Quilter Cheviot's investment manager David Henry told the Financial Times that there was still value in 60/40 portfolios despite rising inflation and geopolitical uncertainty. He commented, "But if we look at the historical numbers, maybe the grim reaper should hold onto his horses." Henry looked at quarterly returns for stocks and bonds since 1986 and found that there were nine quarters when the prices of both bonds and stocks fell in tandem and it has only happened once since 1986 in consecutive quarters, the first and second quarters of this year. He stated, "Breakdowns in diversification like we have seen this year, are rare. We then looked at 12-month forward returns for a 60/40 asset allocation following quarters where stocks and bonds fell together and returns were pretty healthy following those quarters.”

Finsum: An investment manager still believes in the 60/40 portfolio model as it is pretty rare for stocks and bonds to fall in tandem.

One of the most popular allocations for model portfolios in recent history has been the 60/40 model. A classic allocation with 60% invested in stocks and 40% invested in bonds. Until recently, this model has generated stable returns for investors. However, this year’s brutal returns for both the equity and fixed income markets have investors wondering if the traditional 60/40 model provides adequate protection. In most previous equity downturns, investors have been able to count on bond instruments to hedge negative equity performance due to an inverse relationship between stock returns and bond yields. But this year, investors have been faced with both a down stock market and a hawkish Fed, leading to losses in both asset classes. This has made the 60/40 model seem outdated as of late. While the 60/40 model may not be dead yet, investors may want to consider model portfolios with additional asset classes in the current market environment.

Finsum:With a down stock market and a hawkish Fed, investors may want to reconsider the 60/40 model portfolio.

China has another Covid-19 outbreak that could potentially shut down Beijing in the same way that the world saw a lockdown in Shanghai previously. This outbreak is sending a shockwave across all assets that are spiking volatility. The VIX hit its highest point since mid-March, and there was a mild reservation in the bond market. 10-year treasury yields spiked 14 basis points. Bonds and equities aren’t even the whole stories; everyone knows commodities are in a super cycle, but this outbreak is putting that at risk. A variety of different commodities' prices fell in response. Finally, Wall Street is starting to be concerned that a global recession is a possibility with Ukraine-Russia ongoing, Covid surging, and serious inflation risk.

Finsum: The yield curve is also starting to turn which could be really bad for equities markets.

Investors are doubling down efforts to carry out specific reviews of companies ESG compliance, as a new survey found that 72% carry out reviews compared to a meager 32% a couple of years ago. Some stocks are standing out from the crowd as good ESG investments moving forward. Microsoft stands out by their detailed yearly reports that will stand up to scrutiny and their pledges to reduce their carbon footprint seem very plausible. The next big stock is Nvidia which has one of the highest ESG ratings in the chip manufacturing industry and GPU and other chip demand will only grow moving forward. Dividend darling Coca-Cola should also be on investor’s radar as it has a long positive history of supporting sustainable initiatives. Rounding out the best picks is American Express which has an AA rating on ESG efforts putting it in the industry's 93 percentile.

FINSUM: Stock pickers should look out for consistent ESG benchmarks as this will likely lead to outperformance moving forward.