Green Initiatives

The sky over the Bay Area is covered with a smoke so thick that it is blocking the sun, leaving it orange and ominous. The image (even in a news article) is a wince-worthy reminder that we are in the year 2020, and the world is different.

With a record 900,000 acres of wildfires burning across Oregon, more than 10% of the state’s 4.2 million population have been evacuated, according to the Oregon Office of Emergency Management. That’s a lot of people, and evacuations aren’t anticipated to end there. In total, 12 western states are burning somewhere, with Oregon, California, and Washington most severely impacted. 

“There’s certainly been nothing in living memory on this scale,” describes Daniel Swain, a climate scientist at the Institute of the Environment and Sustainability at the University of California in an interview with the New York Times

Extreme weather is a new reality, and it matters a lot to the future of economies around the world. In January 2020, before the most recent fires, the Bank for International Settlements (an umbrella organization for the world’s central banks) predicted that the disruptive effects of climate change could usher in the next financial crisis. 

This report was not a one off. According to the January 2020 Global Risks Report by the World Economic Forum, the top five global risks are climate-change related. Extreme weather, which includes floods, storms, wildfires and warmer temperatures, is putting millions at risk for food and water insecurity, property and infrastructure damage, and displacement. 

Now, it’s September and we are looking from near or far at the hazy orange sky above the Bay Area wondering: what’s next?

Where climate change was once a theory that people accepted or not in the same way that they preferred cream or not in their coffee, things are changing fast. This is especially true among millennials, who are making no mistake about where their money is being invested, namely into sustainability-oriented funds.

In what might be considered a ray of hope in a strange world, their environmental investment dollars are starting to add up and smash investing records. 

Here’s what environmental investing is and why it has more momentum than ever before. 

What is green investing?

In 2019, “estimated net flows into open-end and exchange-traded sustainable funds that are available to U.S. investors totaled $20.6 billion for the year,” according to Morningstar. “That’s nearly 4 times the previous annual record for net flows set in 2018.” This near exponential growth in investor interest is in part attributed to younger investors with a specific interest in the environment. 

Perhaps even more impressive, in the first quarter of 2020, sustainable investing totaled $10.5 billion, keeping momentum despite the economic downturn ushered in by the pandemic. 

So, where exactly are these dollars going?

It depends. When it comes to Environmental, Social, and Governance (ESG) investments can look much differently from one to the next. 

For one, some investors have a specific interest in “climate change innovators.” According to MSCI, these are companies working to innovate and scale new technologies in a way that solves climate problems in new ways. Beyond investing in the next big technology that might lead us to a net-zero carbon world, investors are looking more and more at the environmental policies of the companies that they invest with across the board. These policies include water management strategies that use water responsibly and the prioritization of protecting biodiversity in corporate operations.  

The relevance of biodiversity to our day-to-day lives is as close as the latest summer “Save the Bees” campaign. Honeybees are crucial for pollinating much of the global food supply, from apples to almonds. It’s estimated that bees are responsible for one of every three bites of food eaten in the United States. In addition to the use of insecticides used for many commercial crops, the destruction of habitat and decline in biodiversity have severely impacted this important species.  

In other words, in today’s world, how businesses do business matters greatly, not only to the environment at large, but also to the long-term value of a company. To address that, companies are putting more effort than ever into describing how they meet sustainability standards in their business operations. 

Why invest in sustainability? 

In a letter to CEOs, Blackrock CEO, Larry Fink describes climate change as “a defining factor in companies’ long-term prospects.” According to Fink, “awareness [of climate change] is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.” 

Fink anticipates a “significant capital reallocation” into sustainable strategies as millennials, who are currently pushing for institutions to develop sustainable strategies and who will eventually become the policy makers and CEOs of the world. 

In other words, environmentally focused investing is the future. 

Not only is it becoming more popular among millennials, it is paying off for investors. According MSCI, “There is a direct, dollar-value payoff for companies to better manage their ESG risks or meet stated sustainability commitments.” 

Interestingly, since the arrival of COVID-19, awareness to and demand for ESG products is on the rise. Not only did the pandemic accelerate interest in these products, it gave them an opportunity to demonstrate their resilience, with ESG investments less impacted by the pandemic-driven market drop in the spring. 

If you are ready for a certain investment in an uncertain world, environmental investing is a natural choice.

How to invest in green initiatives

The environment, of course, impacts every one of us and touches every industry. Investing in such a broad theme can be challenging for investors. Fortunately, a search on Magnifi suggests that there are a number of ETFs and mutual funds that can help investors access this growing and all-encompassing sector.

 

Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Try it for yourself today. 

This blog is sponsored by Magnifi. The information and data are as of the publish date unless otherwise noted and subject to change. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. [As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer, custodian, investment advice or related investment services.]


Real Estate

The headlines highlighting the rise of housing markets are as common as the “SOLD” signs on lawns in neighborhoods throughout the United States. 

“Despite COVID-19, Philadelphia’s real estate market is booming.”

“Pandemic pushing Cape Cod real estate sales, driving prices up.”

But, who moves in the middle of a pandemic? Apparently, lots of people. 

The world looks much different today than it did at the beginning of the year. Since the arrival of the coronavirus to the United States in January, people have adapted their lives and recalibrated their plans significantly. For many, that has included planning a move. 

So, for all of the lost jobs and unknowns about how the economy will recover, the real estate industry is holding its own. Here’s what investors should know. 

What’s happening with real estate?

NYC real estate sales fell by 54 percent in the second quarter of 2020, amounting to the largest decline in 30 years, according to a report by Miller Samuel and Douglas Elliman. Orange County, California reported its biggest price decline since 2009, 5.2 percent. In other words, more and more people are saying goodbye to city living. 

But, things in the suburbs are booming. After an initial dip in April, May showed strong market interest, according to realtor.com.With all of the uncertainty surrounding the pandemic, what is it that has moved people to start considering a move? 

“Quarantine was the greatest accidental PR campaign for the value of real estate that I’ve ever witnessed. Now, people have been inspired to invest more into their homes and push their budgets just a little bit further,” according to Forbes real estate writer Ryan Serhant. 

No doubt, after just a few months, people have new housing needs. Remote work is looking like the new norm. Outdoor space feels less optional. And suddenly many families with kids need to find space to not only work remotely, but also facilitate virtual learning for their kids. Welcome to 2020.

“Housing is a basic need, and the decision to buy one is usually prompted by entering a new stage of life,” according to housing website Curbed

Add strong interest and new needs to attractively low rates, and the sales started. The average for 30-year fixed mortgages fell below 3 percent for the first time on record in June, prompting more people to consider buying. And so, the headlines and the “SOLD” signs followed.

So, if everyone is working at home, what’s happening to office space?

For corporations, office space can account for the second largest expense following payroll. Companies know that. Moreover, these same companies realize that their offices are currently sitting largely unoccupied. 

Companies are anticipated to reduce office space over the next three years, according to a report by CNBC. Similarly, a Reuters analysis of 25 large companies indicates that they plan to reduce office space over the next year.  

According to a May report by Moody’s Analytics, “As employers have been compelled to execute remote working policies, national vacancies may break the 20% mark by 2021, and effective rents in some markets like New York may fall by close to 25%.”

But, not every business is turning in their notice just yet. Most office leases run from three to five to seven or 10 years, so some businesses are just stuck with the space. 

That’s good news for investors, who aren’t feeling the pain. 

According to Reuters, “concerns about declining office space use have not hurt commercial mortgaged-backed securities, with the iShares CMBS ETF up 4.4% for the year to date.”

Why the continued success? 

Offices are useful for everything from building work relationships to expressing organizational values and aspirations, according to the Harvard Business Review. Companies, especially those with a nearly all-remote workforce at the minute, know that better than anyone. And so, commercial offices are probably not going away in their entirety. They will, however, emerge on the other side of the pandemic and are likely to look much different. 

For one, office spaces might simultaneously scale down and become more dispersed, with flexibility to locate near clients and foster high-quality connections between staff, according to the Harvard Business Review.

Moreover, space will increasingly become mixed-use, extending its hours of life beyond the 9-5. This means offices that have retail, dining, and other features that invite community members, keeping the space busy beyond the workday hustle. 

But, don’t expect a boom of new office space in the near future. 

The Detroit Free Press reported in June about ongoing office space construction that might be at risk. In addition to the unknowns about the need for new, Class A spaces in the short term, the supply chains that delivers building materials have been impacted by the virus. 

Part of the question is: will businesses decide to keep more remote work arrangements permanently, relocate their offices to less-expensive suburbs, or will they keep with the status quo?

Still, real estate investment is on the uptick. 

Despite all of the uncertainty, according to a Gallup poll, real estate remains a top investment choice for Americans. As the stock market looks more uncertain, real estate looks safer. Not to mention the historically low interest rates that have helped families move into new homes. 

Roofstock, a platform for investors to buy and sell single-family rental properties, has experienced substantially increased web traffic since the coronavirus arrived, indicating that global investors are on the lookout for less volatile investment options.

The bottom line: real estate sales and investment is on the rise. The informed investor can find ways to invest in both residential and commercial real estate in unique ways.

 

Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Try it for yourself today. 

This blog is sponsored by Magnifi. The information and data are as of the publish date unless otherwise noted and subject to change. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. [As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer, custodian, investment advice or related investment services.]


Urbanization

Urbanization

According to the UN, globally three million people move to cities every week. 

Talk about the great migration.

And, the trend of people around the world packing up their bags to move to the city isn’t expected to change anytime soon. Current projections anticipate that 60 percent of the world’s population will be living in urban areas by 2030, according to Euromonitor

As more and more people have turned in their rural lifestyles in exchange for crowded urban spaces and better opportunities, the massive number of people moving to cities has had a major impact on what the world looks like… not just sitting in traffic, but also from outer space. 

A megacity is an urban area with a population of at least ten million people. In 1990 there were only 10 megacities, which were home to 7 percent of the world’s total urban population. As of 2018, there are now 33 according to a 2018 white paper from Euromonitor titled Megacities: Developing Country Domination. This multiplication of megacities all over the globe has had major implications on the environment.

Urbanization as a megatrend is not lost on investors. With changes happening at hyper speed, a host of opportunities for new and emerging high-growth business models are ripe for investment. 

What is urbanization?

To say the least, urbanization at such a massive scale makes city-living much more complicated.

While increased urbanization is linked to more economic development in the form of new jobs and better productivity,  it does not directly cause it: urbanization only spurs economic development in the presence of other factors including the availability of non-farm jobs, infrastructure, and public services.

These are no easy check boxes to fix when you consider that pervasive challenges in emerging urban environments include “insufficient infrastructure, inadequate urban services, rising informal settlements, poverty, urban insecurity, increasing inequality and climate change.”

In other words, poor infrastructure paired with a lack of investment in emerging cities can make or break a city’s success. 

Not to mention, failure to develop sustainable growth can literally change the face of the planet. According to NASA’s Megacities Carbon Project, megacities are the largest human contribution to climate change. 

While cities occupy only 0.5% of the world’s land, they “consume 75% of its natural resources and account for 80% of global greenhouse gas emissions.” When it comes to the planet, environmental implications are not distinct and separate from economic development.

While China’s has been lauded for its economic development, its poor urban air quality and water pollution costs the economy 6% GDP each year according to the World Bank. In the US, the cost is roughly $1 trillion per year. 

That’s a lot of money lost, but not without notice. 

The big problems that urbanization presents are being met with big investment, first in the public sector. For example, on the pollution front, NASA has a Megacities Carbon Project that develops, tests, and improves “robust methods for assessing carbon emissions and monitoring the atmospheric trends of carbon attributed to the world’s largest cities.”

The private sector is also eyeing changes and spending big money. 

In 2016, PriceWaterhouseCoopers anticipated that private companies would invest $78 trillion in global infrastructure over the next ten years to support the growth of cities. Where will that money go? To smart solutions.

Why invest in urbanization?

More and more, notable investment firms are calling for balance as a means to long-term, sustainable urban growth. In other words, new digital and data-driven solutions should improve livability, productivity, and value, spurring further economic development.

According to global investment firm BlackRock, urbanization will usher in new infrastructure, alternatives to car ownership, new healthcare solutions, increased personal security, and more “smart” applications. 

In an interview with telecrunch, Niko Bonatsos, a managing director at the venture firm General Catalyst Partners, describes two buckets when it comes to investment and urbanization: “The first is in helping cities to run more efficiently, and this is anything that’s happening in the background that you don’t notice until it breaks down – water management, parking, safety, energy stuff. The second bucket is more consumer-facing, meaning products and services that make life better, easier, and more convenient for inhabitants of dense cities.”

In other words, for investors, urbanization is a catalyst for new business models across the board—

from delivering public services to planning urban environments. Examples of smart solutions include e-hailing for shared vehicles, smart metering, e-government, and digital payments for real-time services… just to name a few. 

As the world’s population moves at an unprecedented rate, so are the solutions that are helping to make urbanization more sustainable. Together, urbanization and investment is an equation for economic growth.

How to invest in urbanization

Naturally, in something as broad and multinational as urbanization, investing isn’t as simple as choosing a few companies. In order to reach the full scope of this trend it’s important to invest broadly in all of the different sectors and niches that are shaping and being reshaped by this shift toward urban living. Fortunately, a search on Magnifi suggests that there are a number of ETFs and mutual funds that cover urbanization.

Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Try it for yourself today. 

This blog is sponsored by Magnifi. The information and data are as of the publish date unless otherwise noted and subject to change. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. [As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer, custodian, investment advice or related investment services.]


Infrastructure

As the economy rides out the new reality of the Coronavirus, spending on infrastructure could be an answer to the United States’ economic woes, according to a nearly $1 trillion government proposal currently in the works.

The U.S. infrastructure funding law is up for renewal on September 30th. In its absence, investors are expecting something big to happen. The news of the non-finalized proposal already sent stocks soaring. Last week, upon the announcement, Fluor Corp. surged 11% before regular U.S. trading began, while Vulcan Materials Co., another heavy infrastructure company, similarly climbed by 8.3%.

Regardless of the fate of this specific proposal, infrastructure as an agenda item isn’t going anywhere. According to a statement from White House spokesman Judd Deere, “Since he took office, President Trump has been serious about a bipartisan infrastructure package that rebuilds our crumbling roads and bridges, invests in future industries, and promotes permitting efficiency.”

In fact, infrastructure has been on the minds of lawmakers for some time now. In January, the Democratic-led house laid out a $760 billion, five-year infrastructure package. That follows another package set forth by President Trump two years prior that totaled $1.5 trillion. While neither of these proposals were the final fix, they underscore the need for improved infrastructure throughout the United States, and tangentially, a new era of government investment in the U.S.

It’s a sure bet that with the pending renewal date, the next generation of government-led investment is imminent in one form or another. Here’s what all investors need to know. 

What is Infrastructure?

Traditional infrastructure includes roads and bridges, yes. And in the U.S., ours need a lot of work. According to the American Society of Civil Engineers (ASCE), the U.S. needs to spend some $4.5 trillion by 2025 to fix the country’s roads, bridges, dams, and other infrastructure items that Americans rely on every day.

Per the same report, the 2017 Infrastructure Report Card (which is published by the ASCE every four years) many of the one million pipes that carry American drinking water have been in use for almost 100 years. Aging pipes are a serious issue when you consider that there are an estimated 240,000 water main breaks per year, not to mention issues with contamination. 

And, more than 200,000 of the 614,387 bridges in the U.S. are more than 50 years old. It is estimated that these will cost as much as $123 billion to fix.

This physical infrastructure needs to be fixed.  

But, amid today’s technological renaissance, our society is largely reliant on wireless technologies and networks more than ever, and that counts as infrastructure too. Accordingly, there is also a need to innovate and improve in the wireless and 5G network arenas, as well as implement better broadband access for rural areas of the country.

In other words, infrastructure today refers to both Route 66, as well as the “information superhighway.”

Why Invest in Infrastructure?

Roads and bridges are in many ways at the core of economic growth. According to the ASCE, “infrastructure brings you breakfast.” Its website follows a bagel from wheat fields in the Midwest to a bakery in the South, demonstrating how the price of the bagel is impacted by its journey along America’s infrastructure.

Traditional infrastructure provides essential services to society and benefits. They are “essential to the sustainability and growth of an economy,” according to the Royal Bank of Canada’s Global Asset Management.

Even more, because there is often little competition in regulated industries or after a government contract is established, traditional infrastructure investments tend to have sustainable cash flows and resistance to economic swings. 

If the market for roads, bridges, and pipes seems pretty straightforward, consider what the new high-tech infrastructure of 5G could mean.

Given that the transition from 3G to 4G wireless communication helped usher in the era of online banking, Uber, and Snapchat, the nationwide transition from 4G to 5G could mean big changes and opportunities. 5G offers the most capable wireless infrastructure available that has the potential to be 100 times faster than 4G, with increased connection capacity.

Market intelligence firm IDC forecasts that worldwide 5G connections will reach 1.01 billion in 2023. That’s up from approximately 10.0 million from 2019. That’s good news considering that 5G is anticipated to be a driver of technological growth for years to come, supporting the “future digitization and automation of systems, connecting smart sensors with AI.”

In a world where the internet is more capable and reliable than ever before, does the wireless transmission of energy seem like a thing of science fiction?

It’s not. In fact, it’s already possible through UV rays, microwaves, electromagnetic fields, inductive coupling, and via Wi-Fi. And, even our electric toothbrushes. If applied on a large scale to the world outside of our bathrooms, the wireless transfer of energy could be transformative. It could give people without a reliable source of power, in rural areas for example, wireless access to a sustainable power supply. 

The companies that make the component parts of this technology, like the makers of semiconductors that make chips for smartphones, are sure to soar with increased demand.  Consider also the makers of wireless sensors, which support new gaming capabilities of 5G, and the manufacturers of fiber optic technologies that support new 5G networks. 

It’s not just the makers of the hardware that will benefit. Mobile apps that require large amounts of data transfer, from Netflix to Spotify, are anticipated to see a boost from increased online capacity. Standard 5G systems are also expected to boost the speed and efficiency of cloud computing services. 

The future of infrastructure is twofold — on both an improved roadway, and improved information highway. The need for investment is not a surprise to lawmakers or to the average American — but the reality of investment, especially considering the looming September 30 deadline, is imminent.

How to invest in infrastructure 

Given the broad reach of infrastructure as an asset class, it can be challenging for investors to fully diversify their holdings. However, infrastructure-focused ETFs and mutual funds are a good way to access this sector without investing directly in individual companies. A search on Magnifi suggests there are a few different ways to do this.

Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Try it for yourself today. 

This blog is sponsored by Magnifi. The information and data are as of the publish date unless otherwise noted and subject to change. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. [As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer, custodian, investment advice or related investment services.]


forestry

Forestry

One of the more interesting quotes often attributed to famed investor Warren Buffett concerns planning for the future: “Someone’s sitting in the shade today because someone planted a tree a long time ago.” 

Forests take decades to grow and mature and only moments to destroy. Properly managing a forest involves meeting the economic necessities of the present while laying the groundwork for ecological health and economic potential into the future. Forests provide countless, critical ecosystem services, including storing and purifying water, stabilizing soil and preventing erosion, capturing carbon dioxide from the atmosphere, and fostering biodiversity. 

Forests also provide significant economic benefits, including timber for construction, wood pulp for paper, and firewood for heating and cooking. 

Historically, the ecosystem services and economic benefits of forests have often been in conflict with each other, with people often placing short-term economic benefits above long-term ecosystem health, ultimately at the cost of both. 

For a recent example of this conflict, look no further than the 2019 Amazon rainforest wildfires. In an attempt to clear land for cattle grazing, ranch owners across the shrinking Amazon rainforest lit fires that quickly spread out of control, burning an estimated 2.3 million acres of forest and darkening the midday sky of cities hundreds of miles away. 

Forests must be carefully managed in order to provide mankind with crucial economic benefits while also performing essential ecological functions. Millions of acres of burned rainforest may provide ranchers with a temporary economic boom in terms of a larger grazing area, but the long-term effects of haphazardly clearing forests result in dire ecological and economic costs.  

Professionals in the forestry industry work to achieve a sustainable balance between the environmental and economic demands placed on forests. Though the management of forests is a very old profession indeed, the forestry industry is currently in the midst of a rapid modernization as business and environmental interests implement technological innovations that increase profitability and improve ecological health. 

This modernization is especially significant because of the role forests play in fighting climate change. Forestry professionals are looking to innovation to help them do more with less, and the growing urgency to address climate change will likely mean that innovation will be highly valued.

For those interested in the investment potential of this important industry, there are a few key points to understand.

What is forestry?

The North Carolina Forestry Association defines forestry as “The art and science of managing forests to produce various products and benefits including timber, wildlife habitat, clean water, biodiversity and recreation.” 

As an industry, forestry is vast, encompassing a multitude of business operations concerned with harvesting, transporting, refining, and distributing forest products. Deeper still is the underlying machinery and technology that make modern forestry possible. 100+ years ago, harvesting timber often involved men felling trees with axes or saws and transporting the timber to a sawmill via mule train. These days, timber is often harvested using cutting-edge technology, such as the cut-to-length (CTL) harvesting method. With CTL harvesting, specialized equipment cuts, cleans, and loads logs for transport in a matter of seconds, all while operators are safely inside the machine cabs and away from falling branches and dangerous terrain.

There is a growing movement in the forestry industry towards what is referred to as “precision forestry.” Precision forestry is an approach to managing forests that utilizes advanced technology to unlock greater economic and environmental value through improved information gathering and operational control. 

For instance, lidar is a cutting-edge surveying technology that uses lasers to generate extremely detailed maps. After mapping a forested area using lidar, forestry professionals are able to accurately estimate the quantity of standing timber, as well as where the access road should be built and which machinery should be brought in to do the job. Better information through technologies like lidar means that forest managers are able to make decisions that improve cost-efficiency and minimize environmental damage. 

When combined with other cutting-edge technologies, such as drones, soil sensors, and IoT-integrated devices throughout the harvesting and reforesting process, precision forestry is set to unlock significant value across the forestry industry.

Why invest in forestry?

While the accelerated adoption of advanced technologies is likely to improve cost-efficiency and drive innovation across the forestry industry in the coming years, current trends indicate that the industry faces tough headwinds. The demand for construction lumber, which surged in the years following the Great Recession, is waning, and domestic producers are facing increased competition from foreign lumber firms. 

In the U.S., industry performance is highly correlated with the strength of the housing market: a robust housing market usually means more new homes and an increased demand for wood products. 

For instance, Weyerhaeuser (the largest forest product company in the U.S.) experienced a sharp stock price drop as a result of the Great Recession and the collapsing housing market, from a high of $86 per share in early 2007 to a low of $15 per share in mid-2010.

U.S. revenues from forest products in 2019 totaled about $128 billion, and revenues from exports of forest products in 2019 totaled about $16 billion. Paper mills, which currently comprise the single largest segment of the U.S. forestry market, are forecast to see revenue decrease by -2.6% annually over the next five years. Sawmills and wood production, the second-largest segment, are forecast to see revenue increase by 1.1% annually over the next five years. 

The segment with the fastest projected growth is prefabricated home manufacturing (think mobile or modular homes), which is forecast to see revenue increase by only 2.2% annually over the next five years – a sharp decline from the 8.6% annual growth the segment saw during the previous five years.

Successfully investing in forestry involves understanding the underlying market forces driving industry performance and trends, while assessing the value of a mid or long-term stake in the industry relative to other, higher-performing industries.

How to invest in forestry

However, forestry is a legacy industry that is dominated by a few major players. That means investors have few choices when investing directly, and that fact puts them at risk in the case of an industry-wide downturn. Investing in forestry via related ETFs and mutual funds, though, allows investors to access the space without tying them to any one company. A search on Magnifi suggests there are a number of ways to gain access to this segment via these funds.

Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Try it for yourself today. 

This blog is sponsored by Magnifi. The information and data are as of the publish date unless otherwise noted and subject to change. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. [As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer, custodian, investment advice or related investment services.]

 

 


Caterpillar (CAT)

The economic bellwether that no one ever thinks about, Caterpillar (CAT) is a company that designs, develops, engineers, manufactures, markets and sells heavy machinery and engines, including construction equipment, financial products and insurance worldwide. It is the world’s largest construction equipment manufacturer. As such, its success and failure are seen as a preview of what’s to come next for the economy at large.

The company was founded by the 1925 merger of the Holt Manufacturing Company and the C. L. Best Tractor Company, both of which were leaders in the field of steam equipment. Following the merger, CAT consolidated its product lines, eventually expanding into military vehicles and hardware sold to the U.S. Department of Defense in World War II. 

Today, Caterpillar produces machines ranging from tractors to hydraulic excavators, backhoe loaders, motor graders, off-highway trucks, wheel loaders, agricultural tractors, locomotives and more. Its products are used in the construction, road-building, mining, forestry, energy, transportation and material-handling industries.  

Rationale 

A direct way to gain exposure to Caterpillar is to buy the listed shares. But that can be a risky approach, given Caterpillar’s wide business interests. It’s no accident that fluctuations in CAT’s stock price are seen as an economic bellwether – a slowdown in construction spending often portends a broader economic slowdown. That ties Caterpillar closely to market forces that are outside of its control.

A solution that can dampen some of that volatility is to buy funds that provide exposure to Caterpillar and other similar firms, rather than CAT shares themselves. After all, the return drivers that will benefit Caterpillar might also benefit other similar firms in construction, manufacturing, and heavy industry. As investment management is gradually moving to the construction of portfolios using ETFs and mutual funds in addition to single stocks, investors would do well to consider gain exposure to firms like CAT through these types of funds.

Investing in CAT 

A search on Magnifi suggests that investors can gain access to CAT via a number of different funds and ETFs, including those shown below. 

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