FINSUM + Magnifi: Vanguard Launches New Bond ETF with Custom ESG Strategy

(September 2020)

ESG has been flourishing since COVID began. ESG and COVID era investing naturally align—at their core, both are about risk mitigation. However, the challenge is figuring out the best way to invest in ESG. The whole area is vague. There are many funds to choose from, but the way fund providers separate good companies from bad is complicated and often opaque. To this environment, enter a new fund from Vanguard, the Vanguard ESG U.S. Corporate Bond ETF. The fund covers the broad corporate bond space with an ESG lens, but does so with a very well-defined methodology. The fund is using an ESG index specially developed by MSCI and Bloomberg. The index uses a “exclusionary screening process” which filters out companies involved in various vice industries, gas, GMOs, oil, thermal coal, firearms, and anything nuclear-related.
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FINSUM + Magnifi: DOL Plan to Ban ESG from 401(k)s Gets Attacked by Industry

(September 2020)

Anyone who invests significantly in ESG will already be aware: the DOL is going after the ESG sector and has a proposal making progress that would bar the inclusion of ESG funds in 401(k)s. The push—which the DOL seems very committed to—comes despite the fact that almost everyone in the wealth and asset management spaces says there is no real problem. The DOL is making the rule because it fears that ESG funds could be against a client’s long-term economic interests. However, according to BlackRock, over the last ten years “94% of sustainable indexes outperformed traditional indexes”. BlackRock and Fidelity have both come out publicly against the rule, with the latter publishing an 11-page letter to the DOL which said the rule was not “well grounded or supported by much of the emerging data”.
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FINSUM + Magnifi: Why Reg BI Will Get Scrapped Within a Year

(September 2020)

Make no mistake about it. If you were to make odds on whether Reg BI will still be in place one year from today, most would put the chance at less than 50%. That is a pretty dramatic reality for the SEC’s centerpiece legislation of the last half decade. The reason why is that the Democratic party and Joe Biden have made it very clear that they want to pursue a more robust fiduciary standard, and they are currently ahead in the polls. If Biden wins the election, they have many avenues to do this, such as by replacing the head of the SEC, or by passing legislation that alters the Dodd-Frank Act to require a true fiduciary component.
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How to Build Client Portfolios in a Time of Uncertainty

One by one over the years you met new clients, shook their hands, and they entrusted your firm with their investments. Slowly, word got around and your portfolio grew. In January of 2020, before the world was upended by the COVID-19 pandemic, years of progress and growth seemed like the norm. 

All was well. 

 

 
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FINSUM + Magnifi: Why the Volatility Isn’t Going Anywhere

(September 2020)

For the last several weeks the market has been mired in a rut of high volatility, mostly to the downside. Investors seem to have the impression that it will abate at any moment, but the reality is that a calming seems unlikely. This is for two reasons. Firstly, we are nearing the end of the month and quarter, and stocks are still up significantly on the quarter. This means many investors are likely to take some gains and rotate into fixed income—a negative for equities. Secondly, anxiety about the election seems to be rising, which should keep the markets volatile.
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FINSUM + Magnifi: Here is How to Play the Tension with China

(September 2020)

US tension with China is reaching new heights over the last few weeks. Not only are the two countries in an escalating trade war that has finally started to see China getting more assertive vis-a-vis Trump’s actions, but now Beijing and Washington are squaring off over TikTok. With trade relations between the countries devolving, Goldman says the best action investors can take is to invest in funds which have exposure to US onshoring efforts. Goldman’s thesis is that economic tension with China will lead to the onshoring of US supply lines, and that such a transition will benefit a handful of sectors. In particular, pharmaceuticals may do well as it is becoming very plausible that the US government might mandate that pharmaceutical drugs need to be made in the US. Additionally, automation and robotics companies stand to gain as the expense of reshoring US manufacturing leads to investments in automation.
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FINSUM + Magnifi: This Volatility is the Second Leg of a Bear Market say Analysts

(September 2020)

The volatility and losses over the last four weeks have been more severe than most imagined they would be. What started as the market “taking a breather” has morphed into very significant losses and a market teetering on the brink of returning to a bear market. Now a chorus of Wall Street analysts are saying something similar: this may indeed be the next phase of a bear market. Aside from the short-term warning sign of large investors taking profits, the long-term driver of the next phase of a bear market might be the rise of deflation. With so many workers losing their jobs, and automation taking over in many areas, deflation seems quite likely. If that happens, an extended bear market reaching into 2021 may take hold.
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Diversity

There’s a saying that “teamwork makes the dream work.” In the modern world, a diverse team can be the difference between success and failure. These days, employees, customers, and investors alike know that a talented group of people who advocate for the best ideas really get the job done. Usually, those people don’t all look the same.

Moreover, there are metrics that prove the merits behind the philosophy.

According to the Wall Street Journal, in 2019, the 20 most diverse companies had an average annual stock return of 10% over five years, compared to 4.2% for the 20 least-diverse companies surveyed. 

The world in 2020, though, is much different than it was a year ago. 

With the disruptions to day-to-day life and business caused by the COVID-19 pandemic, it can be easy for companies to identify goals like inclusion and diversity (I&D) as more “feel-good” than critical to success. Now more than ever, though, the reality is that I&D is crucial to long-term success. 

“Commitment to I&D can help drive innovation, overcome business challenges and attract and retain top talent,” according to BlackRock. Even more, I&D “are critical for business recovery, resilience, and reimagination” according to McKinsey

There’s no denying that a more challenging world means that companies need more effective teams, which require diversity. 

Here’s why investors should put their money where the I&D is. 

What Is Inclusion and Diversity (I&D)?

Diversity “is any dimension that can be used to differentiate groups and people from one another. In a nutshell, it’s about empowering people by respecting and appreciating what makes them different, in terms of age, gender, ethnicity, religion, disability, sexual orientation, education, and national origin.”

Inclusion “is an organizational effort and practices in which different groups or individuals having different backgrounds are culturally and socially accepted and welcomed, and equally treated.”

And, when you put these two together, it sounds like an ideal place to work. 

Why? No company operates in a vacuum— all operate in a diverse and quickly changing world, with global customer bases.

I&D has impacts for employers and employees alike. According to Allianz Global Investors, “Only if people feel included, will they bring their full selves to work and give their best. Only if people feel they can share their different perspectives, will companies fully unlock their potential to innovate and make the best decisions.” 

There is more than one Inclusion and Diversity index, but one of the most popular is the index developed by Refinitiv. Using 24 metrics across four key pillars, Refinitiv ranks over 7,000 companies around the world, identifying the top 100 publicly traded companies. The index’s ranking is based on corporate pillars including diversity, people development, inclusion, news, and controversies. 

A similar index was launched by Universum in 2019. Universum’s index focuses on recruiting for diversity. According to the index, cultural diversity is more complex than gender, age, and ethnicity. Rather, cultural diversity extends itself to include personality traits, socio-economic backgrounds, nationality, work experience, and education.

Why Invest in Inclusion and Diversity?

Diversity and inclusion efforts foster a dynamic business environment, boosts idea generation, and is an indicator of long-term success, all of which are markers of good investment opportunities. 

I&D is proven to have an impact in practice. For example, inclusion and diversity helps companies to reach a global customer base. According to a study by the Harvard Business Review, “A team with a member who shares a client’s ethnicity is 152% likelier than another team to understand that client.” Beyond that, according to the same study, it’s crucial for innovation leaders to encourage employees to share their ideas.

Moreover, investing in I&D can help companies to achieve higher returns.

McKinsey’s Diversity Matters study examined data (including financial results and the composition of top management) of 366 public companies across a range of industries in Canada, Latin America, the United Kingdom, and the United States. The study found that: (1) “Companies in the top quartile for racial and ethnic diversity are 35 percent more likely to have financial returns above their respective national industry medians” and (2) “Companies in the top quartile for gender diversity are 15 percent more likely to have financial returns above their respective national industry medians.”

Measuring diversity and inclusion in practice has its challenges, but also its benefits.

According to Dr. Rohini Anand, Sodexo Corporation’s senior vice president and global chief diversity officer: “For every $1 it has invested in mentoring, it has seen a return of $19.”

The Fluor Corporation measures I&D in employee productivity and engagement, which translates to company performance resulting in “indirect costs or benefits to the company.” 

At MGM Mirage, I&D is measured in human resources, purchasing, construction, corporate philanthropy, and sales and marketing. It even includes editorial coverage about its I&D as having advertising value. 

As diversity becomes more important than ever before on investment reports, portfolio managers are seeing more and more correlated to positive returns. Investing in companies that value I&D is not only a way to identify companies that have an edge on their competition, it is also a way to embrace and promote this value in the corporate world. 

How to Invest in Diversity and Inclusion

Naturally, with a theme as broad as diversity, investing isn’t as simple as picking a few diverse companies and calling it good. For those investors interested in supporting a broad swath of companies that score highly on I&D, a search on Magnifi suggests that there are a number of ETFs and mutual funds to consider.

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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.]


Building a Reliable Retirement Income Stream

What will life be like in the days, months, and years after you retire? A lot of that depends on the income that you have after you stop working. That’s right, there’s more than one income stream that all near and far future retirees should cultivate, starting now.  

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FINSUM + Magnifi: Why the Senate May Not Even Try to Confirm a New Justice

(September 2020)

Since Ruth Bader Ginsburg’s death over the weekend, the news cycle has been intensely focused on Republican efforts to nominate and confirm a new justice. A lot of attention has been paid as to the exact number of supporters in the Senate as a way of deciphering whether a confirmation can be achieved ahead of the election. However, one fact that is not being discussed much is the reality that many in the Senate don’t even want to try to confirm a justice ahead of the election. The reason why is that while confirming a new conservative justice would be advantageous for them in the long run, holding a confirmation process now could have severe repercussions in the upcoming election. Many embattled Republican senators in tight Senate races could be significantly wounded by confirming a new justice now, meaning that the Republicans could risk losing control of the Senate if they press ahead with a confirmation so close to the election.
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