Market Update
September was another volatile month for global financial markets, as central banks reiterated how far they are willing to go to get inflation back to long-term target levels. For example, in the US, this caused interest rates on bonds to rise by around 0.70%, weighing on the returns of bond investments. Share markets were also volatile, as investors came to grips with higher interest rates and slowing economic growth.
While volatility like this can be unnerving for investors, financial markets experience these kinds of events from time to time. Knowing that happens, we include a number of ‘shock absorbers’ in portfolios to help cushion returns during volatile periods.
Over the past few years, we have continued to add ‘unlisted’ investments, or investments not traded on public exchanges, to the core Booster portfolios. Unlisted investments don’t tend to experience the same volatility as listed markets, as they aren’t susceptible to irrational swings in investor sentiment. The unlisted investments we have added to your portfolios have focused on investments that have sustainable income streams. These types of companies tend to deliver more consistent returns, further supporting portfolios during volatile times.
Another ‘shock absorber’ we include in portfolios is leaving a portion of overseas investments ‘unhedged’ – meaning they are free to move with changes in the New Zealand dollar. The New Zealand dollar tends to fall during periods when financial markets are volatile, supporting the value of unhedged overseas investments. This is exactly what has happened this time, with the falling New Zealand dollar resulting in unhedged global share investments performing 15% better over the past 12 months than if the foreign currency was hedged or locked in.
Responsible Investing at Booster
Responsible investing is a holistic approach to investing in which consideration is given to an investment’s impact on society and the world around us, alongside other financial and business factors. It usually means considering how seriously companies take their environmental, social and governance (ESG) responsibilities rather than just looking at their financial outcomes. Apart from some highly controversial investments (e.g. nuclear weapon manufacturers), it often does not automatically rule out investing in any sector or company.
At Booster, we take a responsible investing approach across all our core funds (not just our Socially Responsible Investment funds) through select exclusions, ESG integration, and company engagement.
Exclusions
As a starting point, we exclude direct investments in companies involved in particularly controversial activities, such as tobacco, cluster munitions, and nuclear weapons. These exclusions apply to all our core funds, but for those investors looking to go a step further, our Socially Responsible Investment funds offer a more explicit, broad-ranging set of exclusions, including fossil fuels, factory farming, gambling, and others.
ESG Integration
The next step in our responsible investing approach is to consider ESG factors in our investment selection process across all our direct listed share investments. Here are a few examples of ESG factors we currently assess companies on:
We combine these ESG factors with financial and business analysis to assess companies relative to their peer groups. We then look to improve our overall ESG assessment of our funds by reducing/removing investments in poor-scoring companies in favour of better alternatives. Setting ethics aside, evidence continues to show that companies who take their ESG responsibilities seriously also compare favourably on other aspects of company performance.
Engaging with Companies to Improve
And finally, as part of our approach to responsible investing, we engage with the companies in your portfolio to improve their ESG performance and ensure they are being managed in your best interests.
One of the ways we engage with companies on your behalf is by voting at their annual general meetings – a key forum for investors to have their say on how companies are being managed. Most of the resolutions put forth at these meetings are on ‘routine’ business matters, such as the re-election of directors, and we support them, but some we don’t believe are in the best interests of shareholders. For example, we recently voted against the $160m+ CEO pay packages of Intel and ServiceNow as we felt these were excessive and not in shareholders’ best interests.
Another focus of our company engagements is to reduce the environmental impact of the companies in your portfolio. With this objective in mind, we recently joined two climate-focused investor initiatives – the Carbon Disclosure Project (CDP) and the Investor Group on Climate Change (IGCC).
The Carbon Disclosure Project (CDP) is a not-for-profit charity that engages with over 5000 companies to collect data on issues such as climate change, water scarcity and deforestation. CDP has had a meaningful impact in getting global companies to provide more transparency on their environmental footprint. Having accurate and consistent data when assessing companies is a crucial first step to help us identify and reduce environmental risks in your portfolio, as well as help inform our engagements with high-emitting companies.
The Investor Group on Climate Change (IGCC) is a collaboration of Australian and New Zealand institutional investors who are focused on mitigating the impact of climate change on investments. This is done by facilitating dialogue between investors via working groups as well as coordinating participation in collaborative engagement initiatives. The engagement initiatives target the highest emitting companies, aiming to encourage them to adopt emission reduction targets and strategies to prepare them for a low-carbon world.
We are excited to join these two initiatives, which will strengthen our engagement efforts through better insights into companies’ environmental footprints and teaming up with a group of like-minded investors. These initiatives complement Booster’s overall Responsible Investing approach to promote better business practices and consider ESG risks in your portfolio. For more detail on our approach to responsible investing, see www.booster.co.nz/responsible-investing-policy.
The Booster KiwiSaver Scheme, Booster Investment Scheme and Booster SuperScheme are issued and managed by Booster Investment Management Ltd. For a copy of the Scheme product disclosure statements, go to www.booster.co.nz