Who’s Got Talent?

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Welcome to August!

Talk about topsy-turvy. With five months left to go in 2022, we’re wondering if this should be called “the year of contradictions.” The US stock market is coming off its best monthly performance since November 2020, even as we debate whether we’re in a recession. (The official authority on such things, the National Bureau of Economic Research, has not declared it so — yet.) Factors like inflation and a strong dollar are hurting some company profits, but not all of them, as we saw with positive Starbucks and Uber earnings this week (and don’t get us started about oil and gas earnings). Froth in the tech industry is being skimmed by falling valuations, layoffs, and metaverse-related job ads all but disappearing. But while the labor market cooled off a little in June, it was still very tight with 4.2 million quitting their jobs amid the continuing Great Resignation and many employers still looking to hire.

Attracting and retaining the best talent is key to business success and can be an indicator of the future direction and competitiveness of a company. The companies that have a leg up on bringing in (and holding on to) a diverse group of top performers often outperform in the long-term. While some are belt-tightening, we continue to see companies looking creatively at how to woo top talent. With burnouts on the rise and churn taking its toll, ping pong tables as a perk are out and executives are focused more deeply on employee welfare, expanding well-being and behavioral health benefits, removing barriers to work, and doubling down on diversity, equity, and inclusion (DE&I) initiatives.

There’s lots of room for improvement, especially when it comes to frontline employees, but the post-pandemic (we hope) world has pushed companies to be much more responsive to employees' needs and interests.

So, where can you go to keep tabs on which companies are doing right by their employees? While there is no one-stop shop, here are some good places to kickoff your research:

• Just Capital’s rankings. They recently came out with their Top 100 U.S. Companies Supporting Healthy Families and Communities index, a key factor in breaking down barriers to bringing valuable workers back into the workforce.
• Worker issues are part of the “S” in ESG, so looking at the details available on the public databases of ESG ratings entities like MSCI, Sustainalytics, and S&P Global can be helpful.
• The Best Workplaces Lists (also handy when weighing a job offer…). Of particular note, Fortune and Great Place to Work recently announced this year’s Best Workplaces for Millennials. They found that millennials are three times more likely to stay with an employer when they believe their work has meaning, and that the companies on the list were leaders in prioritizing a sense of purpose at work.
• Refinitive’s Top 100 Diverse and Inclusive Company list, Forbes’ America’s Best Employers for Diversity tally and the DiversityInc’s Top 50 survey.
  

News you can use

• The last week of earnings reports from the world's biggest oil producers were jaw-dropping. Collectively, the world’s five major international oil companies “made more money in the second quarter than ever before,” reporting quarterly revenues of over $60 billion!
  
• Vaccine and antiviral drug stocks are back in focus with the spread of monkeypox, the latest health crisis to worry about. Shares in Siga Technologies, manufacturer of a treatment called Tpoxx, have more than doubled this year. An analyst at Wall Street brokerage firm Cowen also named Chimerix and Emergent BioSolutions as “key beneficiaries” of the World Health Organization’s declaration that the outbreak is a global emergency.
  
• Gold investors just got a shiny new exchange traded fund with an ESG label — the first of its kind. Launched on Tuesday, the Sprott ESG Gold ETF (SESG) claims to directly source physical gold bullion from leaders in sustainability. Last month also saw the debut of the Franklin Responsibly Sourced Gold ETF (FGLD). You can learn more about gold investing that aligns with your values here.

EV batteries to get a jump start

It is clear that the American car market is changing. And that change is being driven by electric vehicles (EVs). While some will note the role that subsidies and tax incentives have played in attracting new consumers to this emerging sector, demand is on the rise even without federal incentives. While EVs represent only 1% of vehicles on the road in the US today, Q1 sales were up 54% over the same period in 2021, according to the Alliance for Automotive Innovation.

The rapid growth creates a big opportunity for investors here, but what’s the best play?

One option to explore: investing in companies that make the thing that makes an EV an EV — batteries, of course. This niche sector is full of complexities, so let’s dig into a few questions you should be asking as you think about investment options.

Can battery producers keep up with demand?

The International Energy Agency estimates that battery demand will grow 17-fold between 2019 and 2030. That rapid growth means that the world is very quickly depleting stocks of metals used in battery production, like lithium, nickel, cobalt, and graphite.

The supply shortages add to the ethical and geopolitical concerns associated with mining EV battery materials, like environmental damage and human rights abuses (as we’ve covered in FWIW in the past).

Automakers know they need to address these concerns to secure their supply chains and avoid ethical dilemmas. Luckily, new solutions are on the way.

How are batteries and supply chains EV-olving?

The big car manufacturers are shoring up supplies through direct agreements with mining companies—and rethinking the makeup of their batteries. GM, for example, has designed a battery cell that needs 70% less cobalt (aka the “blood diamond of batteries”). The auto giant recently announced a new supply agreement with Livent, a lithium company, and is partnering with LG Energy Solution to build battery manufacturing plants in the US.

Ford and Tesla, meanwhile, are making more EV models with lithium iron phosphate (LFP) battery packs, which don’t depend on scarce cobalt and nickel. LFPs have some limitations but are a viable alternative for shorter-range, lower-priced vehicles. One item to watch: In addition to featuring a vote on a 3-for-1 stock split, this afternoon’s Tesla annual meeting (which will be livestreamed from their new plant in Texas) includes a shareholder proposal that would require the company to report on its progress toward trying to make its batteries cobalt-free.

Car makers are also investing in solid state technology, a new manufacturing method with the potential to make batteries that are lighter, charge faster, less likely to ignite, and able to store more energy. They’re partnering with startups in this space such as Factorial Energy, Solid Power, and QuantumScape.

How many lives does an EV battery have?

As anyone who owns a smartphone knows, lithium-ion batteries gradually store less energy the more they are charged — and that’s the case in vehicles too. An EV battery gets insufficient range to be useful once it reaches around 80% of its original capacity, which typically happens after about eight years or 100,000 miles.

But that doesn’t mean it’s destined for scrap metal. That battery can have a rewarding second life as an energy storage solution. That’s just what Mercedes-Benz Energy and Moment Energy are doing in a new partnership venture. Moment Energy is integrating retired EV batteries into energy storage units that hold energy from renewables. Nissan has a similar partnership with Eaton. And Rivian has been at this for quite a while, donating their test batteries to support the electric grid in Puerto Rico in 2019.

Such solutions are poised to grow as EV adoption increases and more second-life batteries become available. And after the batteries have served their purpose through reincarnation, they can be recycled, pumping materials back into the supply chain.

Several startups are now commercializing cleaner and more efficient recycling techniques for lithium-ion batteries. Li-cycle and American Battery Technology Company are among the companies striving to turn a profit while revolutionizing this niche industry.

How else can I invest?

If you’d rather not pick and choose individual stocks, several ETFs offer ways to make a focused investment in EV batteries. These include the Global X Lithium and Battery Technology ETF, Amplify Lithium and Battery Technology ETF, Optica Rare Earths and Critical Materials ETF, and the VanEck Rare Earth/Strategic Metals ETF.

As mentioned earlier, mining for minerals comes with several social and environmental concerns, so you’ll want to do your homework to find a fund that aligns with your priorities.

Where can I nerd out more? If you want to go down the EV supply chain rabbit hole, check out this really cool interactive dashboard. It maps each mine, manufacturing facility, and recycling plant in the US, with the details on each one, including links to more info.

Inflation-fighting strategies

We’re holding our purses and wallets a little tighter these days as we deal with what economists call “the invisible thief.” At times of soaring inflation, costs climb much faster than usual, eroding your purchasing power since your wages and investment returns don’t keep up.

This year US consumer prices are rising at a pace not seen in 40 years, which means if you’re young, you’ve probably never experienced this unpleasant phenomenon that Warren Buffett once compared to “running up on the down escalator.”

This latest bout of inflation has been caused by a combination of factors, including supply chain snags, the post-pandemic reopening, government spending, and the war in Ukraine. The Federal Reserve is pulling its levers, but analysts predict it could take months and even years to recede, so we’re bringing you a few ways to proactively offset some of the impacts of inflation.

You give your cash the greatest chance of keeping up with inflation if you invest it consistently for the long-term in stocks and other assets. Money in your sock drawer cannot grow no matter how many times you count it.

With that in mind, get ready to choose your fighters:

1. Take Advantage of and Prepare for Rising Rates

With the central bank hiking interest rates, look to place your liquid savings in accounts that offer the highest yield. These could be bank accounts or even certificates of deposits and money market instruments.

Also, prioritize paying off any expensive debt that will only get costlier. The national average credit card interest rate is now 17.48%, as per CreditCards.com, up from 16.16% a year ago.

2. Consider Inflation-Protected Bonds

Treasury Inflation-Protected Securities (TIPS) and Series I savings bonds (I Bonds) are safe, government-issued bonds linked to inflation. In the case of TIPS, although the interest rate is fixed, the bond’s principal value rises and falls with consumer prices. I Bonds earn you a combination of a fixed rate of interest and a variable inflation-adjusted rate, if you can get the very wonky Treasury Department site to work for you.

3. Keep Calm and Diversify With Hedges

Certain assets can help soften the blow to your portfolio in inflationary environments because their value tends to rise with prices and they provide regular income. However, there’s no guarantees with hedges, so make sure not to overdo it, and stay broadly diversified with a long-term plan.

• Gold: Probably the most popular hedge, the precious metal can be easily (and ethically) invested in with gold-backed funds.
• Commodities: Things we can’t live without, like energy and food, are considered safer bets in such times. Funds like the iShares GSCI Commodity Dynamic Roll Strategy ETF (COMT) and Invesco DB Commodity Index Tracking Fund (DBC) have gained over 20% in value this year.
• Real estate: Even if you can’t own property directly, you can still add high rental income to your portfolio with publicly-traded Real Estate Investment Trusts (REITs).
• Dividend stocks: These companies regularly payout part of their earnings to investors.

4. Embrace the Fixed Rate

In the same way that you should avoid high-interest debt (see credit cards above), take advantage of any low-interest fixed rate holdings you had from previous years. Fixed-rate mortgages and car loans would be at the top of this list. For example, if you locked in a 30-year mortgage at 3% a few years ago, experts would recommend keeping that mortgage as long as inflation remains high. By not paying off this mortgage, it may free up other funds that you can use to pay other expenses, invest, etc. And moving forward, you may find the consistency of fixed rates helpful for your budgeting (and your blood pressure).

Of course, consulting a financial advisor who can get a better sense of your specific financial situation is always recommended.

Before you go -

Is 2022 flying by? Maybe it was because the earth seems to be spinning faster than ever… and the Spanish prime minister has started doling out fashion advice in the name of sustainability.

** FWIW team members own shares of Ford, QuantumScape, Rivian and Tesla.