The once red-hot market for unicorn investments has turned chilly. These start-up enterprises with a value of at least $1 billion have enjoyed relative easy access to private capital this cycle. Robust growth, easy credit and a fair amount of hype combined to elevate the early valuations of these companies. Peloton Interactive, Inc. (PTON), the maker of stationary bikes and treadmills, marketed itself as “selling happiness.” Ridesharing company, Lyft, Inc. (LYFT) claimed it was “at the forefront of societal change.” Corporate real estate leasing company WeWork aimed to “elevate the world’s consciousness.”
With over 75% of individual investors expressing an interest in sustainable investing, it is clear that investor demand for Environmental, Social and Governance (ESG) investments is real and growing1. Yet, remarkably, only 36% of financial advisors are currently offering an ESG solution to their clients and less than 8% of co-sponsored retirement plans offer even a single ESG fund2. In that disconnect lies opportunity.
The three main concerns advisors have with environmental, sustainable and governance investing are a lack of transparency, performance concerns and client demand.
Asset flows into money market funds have accelerated considerably since the selloff in late 2018, as illustrated by the graph below. According to the Investment Company Institute, more commonly known as ICI, total money market assets (including institutional and retail funds) currently stand at $3.4 trillion as of 9/18/19, which is the most recent available date.1
Michael Burry, whose firm Scion Asset Management made approximately 489% betting against the housing bubble during the Global Financial Crisis, recently made headlines again. This time, he is of the opinion that another bubble exists today, and passive investment vehicles are to blame.
“The bubble in passive investing through ETFs and index funds, as well as the trend to very large size among asset managers, has orphaned smaller value-type securities globally,” said Mr. Burry.1
As demand for environmental, social and governance (ESG) and socially responsible investing (SRI) investment products grows, advisors are tasked with sorting out the good options from the bad. Unfortunately, there are many problematic products, many of which have been “greenwashed” or marketed in a way that makes the fund appear more ethical or responsible than it really is, which could result in tough conversations with clients.
Here are two approaches you should be careful with:
Can you believe Labor Day is behind us? With the end of the year approaching, here is a checklist of items to keep in mind when speaking with your clients this fall:
On Monday, August 19, 2019, the Business Roundtable, a group of chief executive officers from nearly 200 U.S. corporations, issued a statement1 proposing a new definition of the purpose of a corporation. This new vision included heightened corporate responsibilities toward employees, customers, suppliers, communities and the environment, rather than strictly looking to maximize profits and shareholder monetary value. The statement was signed by 181 CEOs including the heads of Apple, JPMorgan Chase and Amazon.
Throughout this economic cycle, there have been countless events that had the potential to, and often did, send the U.S. equity markets lower. But even the effects of major developments like the downgrading of U.S. debt, Taper Tantrum, or the European Sovereign Debt Crisis — each of which had the potential to cause broader contagion — ultimately proved transitory.
The chart below illustrates the power of a long-term approach and sticking to a disciplined investment strategy.