Insights

As we approach the midway point in the year, we have seen a markedly negative shift in sentiment around ESG. This has largely been attributable to year-to-date performance challenges, exaggerations of positive ESG impacts (greenwashing), and criticisms from state officials and outspoken billionaires alike. The most recent target is one of the largest U.S. credit rating agencies, which has been accused of incorporating “politically subjective” ESG criteria in its assessment of public debt. This month, we also highlight an empirical study that supports our approach to ESG analysis, as well as trends we are monitoring in human capital, product safety, and supply chain management.

In prior pieces, we have discussed risks associated with energy dependence that have emerged as a result of the ongoing war in Europe. While the primary concerns of investors, corporations, and policymakers have been focused on conventional oil and gas, we explore the prevalence of these risks across the clean energy transition supply chain as well. This month, we also review the merits of sound corporate governance and why it has been an integral component of our fundamental analysis for decades. Finally, we highlight ESG-related comments from Q1 corporate earnings releases.

The Federal Open Market Committee (FOMC) met today for the third time this year to update the public on the state of the U.S. Economy and the Committee’s decision on monetary policy.

April was another challenging month for financial markets. The Bloomberg U.S. Treasury index returned -3.21% for the period. The yield on the 10-year Treasury rose a remarkable 60 basis points (bps); the 30-year bond finished the month at 2.9%. The slope of the curve shifted frequently, and by month-end the 2-10s slope had gone from flat to 22 bps. Volatility was high. 
 
 

Current pricing in the bond market makes last year’s discussions about rate increases seem almost quaint. It was only a few short months ago that the debate was centered on two or three fed funds rate hikes during 2022. Instead, we have already had one increase, and the futures market is projecting over 200 basis points of additional hikes this year.

Investors seeking to diversify their investment income streams often consider dividend-paying stocks as an option. Historically, investing in high-yielding dividend-paying stocks has been an attractive investment strategy both in terms of total return and income generation. However, when seeking income from stocks, it generally has been unwise to simply reach for the highest yields possible. Ultra-high-yielding stocks have had lower average returns and higher volatility than other stocks with above-average yields. We explore this topic in our paper.

As the war in Eastern Europe wages on, policymakers have wrestled with enforcing punitive measures on Russia at the expense of higher inflation and diminished energy security for the rest of the world. 

February brought heightened volatility as a result of domestic data and geopolitical developments. The month began with a jump in payrolls here at home, leading to an increase in reates and widening credit spreads. 

Escalating geopolitical tension and rising inflation have preoccupied U.S. policymakers through the first two months of the year, moving the approval of climate funding to the back burner. 

Last month, we highlighted several key trends that we felt could influence the sustainable investing community over the course of 2022. Among those was the need for supportive regulatory policy momentum to continue, particularly in the U.S.