One year after the market decline of 2020

18 Feb

Investing Responsibily

According to a Wikipedia article on the 2020 stock market crash, it began on February 20, 2020, and lasted until April 7, 2020. Investors likely remember that it was both the steepest decline and the fastest recovery on record. Almost as quickly as the Dow Jones Industrial Average went down it began to recover, much to the great relief of many of us.

What difference does a year make in investing?

Our Canadian S&P/TSX Composite Index dropped 37% from peak to trough, then slowly made its way back to finish 2020 with a 2.17% gain. We did nowhere near the 16% return on the S&P 500, or the 43% gain on the Nasdaq as surging tech stocks such as Microsoft, Zoom, Apple, and Amazon powered that index to record highs with their solutions to staying home during the pandemic

How did Socially Responsible investments fare in 2020?

It has been interesting to notice throughout 2020 that funds that focused on investments in fields such as sustainability and environmental solutions held up well. Morningstar remarked on “4 times more sustainable funds finishing in the best quartile than in the worst quartile of their categories” during the first quarter of 2020.

There are numerous vehicles for Responsible Investing: these include individual companies, mutual funds, ETFs, managed portfolios, impact and community investment products, etc. Amongst those which I have recommended to clients, I saw performance of over 7% in a balanced portfolio and up to 21% in a fund focused on long-term capital growth through companies designated as environmental leaders.

The above article cites a few reasons for these results including the fact that sustainable funds tend not to invest in companies in energy-intensive companies such as oil multinationals or explorers. More importantly, investors are looking much more closely at how well companies are managing risks to their long-term viability as thriving organizations. Companies that have a diverse workforce and boards are reducing their carbon footprint, and/or finding solutions to environmental problems have a better long-term outlook.

Community Relations and Human Rights: Companies selected as investments in funds must also be good neighbours and consult with local communities on their development plans in addition to respecting human rights. In assessing community relations, particular attention is given to aboriginal communities – in Canada and overseas. Their commitment to respecting human rights of employees, clients, and their community means they are expected to take action if they discover human rights violations in their operations or those of their supply chain.

An interesting type of fund or ETF, particularly for women, are those which invest in companies that have a strong commitment to gender diversity leadership. For example, a fund seeks to invest in equity securities that satisfy one or both of the gender diversity criteria:

  1. Having a female Chief Executive Officer;
  2.  Having at least 25% female members on the board of directors.

Contact me for more information on any of these solutions if you want to explore investments that reflect your values and have a proven track record of continuing to grow throughout 2020.