Buzzworthy Investing

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Thanks for opening this email and joining us for another week of FWIW! The most clicked link from last week’s edition was to our “Cashing In” story explaining “liquidity,” the resource that is getting the most clicks this month is “Unpacking the ESG Soup” and the most clicked “Before You Go” in the last month was our map to Goat Yoga facilities near you!

Hi there!

Sometimes it is difficult to see the forest for the trees, particularly with the constant breaking economic, political, and social headlines. Focusing on the long term can sometimes be a bit like trying to keep a cat still when there is a laser pointer in the room, but we are starting to see signs that some of the policy decisions made in the last few months are breaking through in the financial markets. A few months ago, stalwart FWIW readers will remember that the Fed started raising interest rates to try to “cool” the economy and tame inflation. The impact of the Fed’s action (and the expected rate hikes still to come) are usually hard to see and quantify in real time. Well, the experts are now telling us they can see their impact. To support this thesis, they point to things like the leveling off of housing prices (thanks to higher mortgage rates) and some of the drivers of higher costs — like used car prices and lumber for construction — flattening or even dropping. This has led some to say that the last month of data (an admittedly limited sample) shows the Fed’s medicine is showing some signs of working.

Cooling off an economy is never easy or straightforward (cough, cough, gas 😲 prices), nor does it create a clear path for investors. But as values-aligned investors look for signs of where the market is ultimately going, it is important to not be distracted by the shiny light of the latest news or trend. As for whether the Fed’s actions are having the desired effect — particularly when global economic trends could also play a big role — we will all have to wait and see. That is why we keep talking about the long term and, a bit farther down this newsletter, we will introduce you to a new and innovative area of investing that we think some of you may be interested in monitoring and learning about as it comes online over the next few years.

News you can use

• The sun came up on the solar industry this week as President Biden invoked the Defense Protection Act to boost the manufacturing of solar panels and shield the industry from two years of import tariffs. While some criticized the decision for aiding Chinese solar panel producers and only providing a short-term fix, the MAC Global Solar Energy Index and the popular Invesco Solar ETF (which tracks that index) rose as shares of companies like SunRun and Sunnova Energy brightened with the news.
• In life, and in investing, timing is everything. Enter the CD-ladder (no, not the one your parents used to fill with Tower Records purchases). With investors putting a premium on liquidity, some have turned to buying multiple Certificates of Deposit with varying maturity dates to try to maximize returns as interest rates rise. Check it out to see if this works for you.
• It’s splitsville for tech companies. The price of buying a single share of Amazon stock just got cheaper after a 20-for-1 split on Friday, and splits are also coming up for others like Dexcom (June 10), Shopify (June 22), Alphabet (July 15), and Tesla (date TBD). Here’s what that means.

Biodiversity

There’s a story about the birds and bees you may not have heard before. Along with other hard-working creatures like bats and butterflies, they participate in the growth of more than 100 crops in the US by carrying pollen from one flower to another. They also affect 35% of the global crop production. Without them, we wouldn’t have coffee or tomatoes or even tequila.

As humans, we rely on the complex workings of interconnected ecosystems for basics like food, clean air and water, raw materials, medicine, and protection from diseases. The rich variety of plants and animals in nature is called biodiversity, and when it is disturbed, the impact can be widespread. For example, the population of pollinators has been shrinking due to loss of habitat, pesticides, pollution, and disease. Governments, NGOs, and corporations are now working to protect them because of the vital role they play in food production.

What’s the buzz about?

More than half of the world’s economic output, or $44 trillion, is dependent on nature, and global executives surveyed by the World Economic Forum placed “biodiversity loss” among the top 3 most severe long-term risks the world faces.

But biodiversity has been largely left out of the investing discussion because it has been hard to quantify; as a result, few investing vehicles effectively value the protection of biodiversity. But that’s changing as innovative solutions are being brought to the table and a wide range of governments, companies, and investors (large and small) are jumping in.

While it is still early days, FWIW readers interested in these birds and bees should keep an eye on a few new frameworks and investment vehicles that could play a key role in propelling this area forward:

1. The Taskforce on Nature-related Financial Disclosures is developing a management and disclosure framework for companies built around the idea that the loss of natural habitats is a financial risk that both companies and governments need to quantify. Their goal is very close to FWIW’s heart: clear and transparent data and standards.

2. Natural Asset Companies: New York Stock Exchange (NYSE) is launching a new class of publicly-traded assets that will assign value to natural assets like clean water, natural habitats, and the value in not extracting resources from specific environments. And they are moving quickly, with plans to launch this new asset class this fall.

What can I do?

The US doesn’t yet have as many funds dedicated to protecting natural resources as Europe, but that could be changing. Two examples are the newly launched Newday Ocean Health ETF (AHOY), which invests in companies that are diverting ocean-bound plastic waste, supporting sustainable fisheries, and controlling ocean acidification caused by CO2 emissions, and the IQ Clean Oceans ETF (OCEN), which tracks the IQ CANDRIAM Clean Oceans Index.

You can also put on your biodiversity risk binoculars when looking at any company you are adding to your portfolio. Some may be particularly well-positioned to take advantage of the emerging sector and these new investment vehicles when they come online. Some strategies:

Look at industries that have taken a proactive interest in protecting biodiversity because it has an impact on their operations. For example, insurance companies are taking a second look at protecting coral reefs, dunes, mangroves, and other natural elements that have previously been barriers to hurricanes and other natural disasters that impact waterfront communities… and the payouts insurance companies have to make.

Back those who are the backbone for creating solutions to protect biodiversity. For example, satellite companies, like Iridium Communications (IRDM) and Maxar Technologies (MAXR), don’t just help scientists with conservation through monitoring and mapping — they also help companies looking to better assess risks.

Check your exposure to companies that contribute to biodiversity loss. Some elements that are already measured can be helpful here. For example, individual firms are already graded on deforestation, a major cause, by the non-profit CDP (see their “Forest” ratings). Many giants have pledged to reduce deforestation in their supply chains as they see it as a financial risk, so a review of their impact reports might be helpful as well.

Innovation can play a key role in identifying solutions and opportunities for values-aligned investors. It is our hope that this glimpse into the (slowly) emerging biodiversity investing world gives you a sense of the power and promise in the space and, if these issues are a priority in your investing strategies, a good place to kick off your research.

Before you go -

The median age for motherhood passed the 30-year mark in the United States for the first time. Liam and Olivia seem to be particularly popular names.

** FWIW team members own shares of Amazon, Alphabet, and Tesla. We also have been known to enjoy tequila occasionally, putting us firmly on Team Pollinator.