It has been a difficult year for markets and a good reminder of why diversifying across many stocks, a key principle to reduce risk, is so important when building a portfolio.
Popular names like Netflix, Tesla, First Solar, Coinbase, Beyond Meat and Robinhood all lost 50 to 90% from recent peaks.
Tech in particular has been hit hard with the Nasdaq index, composed of stocks we all know like Apple and Microsoft, down 25% this year.
More sector-diversified indices like the S&P 500, which tracks large US companies, has lost 16%. Closer to home, Germany’s DAX stock index has fallen by 12%.
Even the safest of assets, Germany’s long-term bond, has fallen by more than 10%.
If you’ve been invested since the beginning of this year in Grünfin’s three themes of climate, equality and health, you’ll most likely be down between 9 to 14%, depending on your risk profile and timing of cash flows. Meaning our portfolios have generally been more resilient than several key indices and stocks.
We are not taking a victory lap. Markets can change quickly, and we invest for the long term. However, we wanted to share with you sound bites on our portfolio philosophy.
1. Paris Agreement aligned stocks
The Paris Agreement was signed by nearly 200 countries and sets the goal of achieving net-zero emissions by 2050 to heal our planet.
Your Grünfin climate investments are in companies aligned to or doing better than the goal of the Agreement. This may mean corporations operating factories fully with renewable electricity or companies approaching net-zero emissions across their supply chain years before the 2050 target.
Your investments include sectors like clean energy, healthcare, consumer goods, financials, communication services and tech.
Because let’s get real. To save the planet, all industries and the world’s largest companies must step up as part of the solution.
2. Geography and size
Your portfolio is highly diversified not just within industries, but also across countries. Your companies operate globally and are based in Germany, USA, France, UK, Switzerland, Netherlands, Australia, Denmark, Sweden and other developed nations.
Your top holdings tend to be mature enterprises with established client bases, solid profits and high access to capital.
This should make your portfolio more resilient if this downturn continues.
3. Diversified beyond solar and wind stocks
We, of course, invest in solar panel manufacturers and wind energy producers as they are critical for sustainability. We must give them the necessary capital to produce, scale and innovate.
However, solar and wind stocks can also be risky. Their margins are thin, competition is intense and many of them are based in developing countries like China, the highest carbon emitter in the world and with poor social record. It is critical to manage the bite sizes you invest in each company to reduce portfolio risk, so beware of funds highly concentrated in only a handful of these stocks.
Investor engagement has the power to impact for a sustainable future.
Simply investing in sustainable funds is not enough. We must also engage with the companies that affect billions of people and that can impactfully reduce Earth’s carbon emissions.
We meet with top executives at some of the world’s largest corporations to influence their sustainability agendas. We support shareholder resolutions that direct them to act for a better planet and ask our influential fund managers to vote for such proposals.
Thanks to each euro you have entrusted to us, we are pushing for change at Unilever, Danone, Kellogg, Kraft Heinz, Nestle, Pepsi, General Mills, Credit Suisse and Deutsche Bank.
Your money is your vote, make it count.
5. Investing for the long term
We don’t know if markets have reached their lowest point. However, we do know that it’s usually the best time to buy when it feels the scariest. In prior cases, markets found a bottom well before the news got better.
Let’s use the beginning of COVID as an example. Imagine you had invested at the beginning of 2020 just before the market started falling. At that time, the world was entering its first lockdown, hospitals were overwhelmed, businesses were suffering, we knew little about the virus and there were no vaccines. The news was really bad.
So let’s say you sold when the market was down (by roughly the same amount as this year) and waited for news to get better. Even if you’d reentered markets six months later when the outlook felt clearer (and missed out on experiencing the actual market bottom), you still would have been meaningfully worse off than staying invested.
We firmly believe sustainable investing is the way of the future and that companies aligned to healing the planet will be better rewarded over the long run. Remember to focus on your target date, diversify and invest sustainably.
The more we are, the more impact we have!
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