| Welcome to the November issue of the Select Wealth Management Dashboard Newsletter. I seem to say this every year, but I just can't believe that there are only 6 weeks left until Christmas. Where has the year gone?!
For this month's newsletter, I'd like to share some information that I found extremely interesting which I came across in an article by Cyrus Taraporevala. Mr Taraporevala is the Chief Executive of State Street Global Advisers - one of the largest fund managers in the world responsible for managing nearly US$3 trillion. He is extremely well respected and a pioneer in the managed fund and EFT universe. His article focused on his predictions for the next decade - the "mega trends" that he sees will shape the investment universe over the next 10 years. Now as you would well know by now, I always take predictions with a grain of salt because nobody has "the crystal ball", but I did find some of his thoughts very interesting. He listed 10 trends, all of which were interesting, but one which really caught my eye. Some of his thoughts worth mention include:
These are all themes that I agree with and that I have discussed in previous newsletters, and to some degree they have a level of consensus amongst investment professionals. However, Mr Taraporevala's main focus was around climate change and how individual companies deal with this. He calls climate change "the biggest challenge for our industry and human life", and forecasts that only companies who "take seriously" the value destruction potential of climate change will survive. Once again, this is nothing new. However, his view on how companies deal with this is quite interesting. He believes that in the next 10 years, all companies will have an "ESG" (Environmental, Social and Governance) rating, and that this rating will become as important as a company's credit rating. Most of us understand the concept of a credit rating. A rating agency (for example Standards and Poors or Fitch), trawls through a company's financial information and gives that company a rating (AAA right through to C) to illustrate its financial strength. Investors can then use this information to help them decide whether or not to invest in that company. By way of example, ANZ bank currently has a credit rating of AA- through Fitch, whereas Heartland Bank and the Co-operative Bank only have ratings of BBB. So when you as an investor are deciding where to deposit your $100,000, this credit rating is an important consideration. Now imagine that each of these banks also had an ESG rating that doesn't consider the banks financial strength, but considers factors such as:
This rating could potentially change your decision on which bank to deposit your money with. In fact, Mr Taraporevala predicts that in 10 years' time, this ESG rating is going to be more important than a credit rating. This would be particularly relevant to the Millennial generation who are extremely aware of ESG issues, and who will have the buying power in 10 years' time. And this won't just apply to bank deposits - it will apply to buying the shares of a company too. The most obvious example of this is the car manufacturer Tesla. The company has been around for over 15 years and is yet to post an annual profit, yet investors fall over themselves to buy shares in the company. The stock price has gone from $25 to $350 in the last 6 years - all the while they have been losing money every year. The only explanation is that investors buy the stock because they believe fundamentally in what the company is doing - designing electric cars to positively impact climate change. Tesla would have an extremely positive ESG rating, and they are being rewarded for it. So it's not too hard to imagine a world where every company has an ESG rating, and where this ESG rating will have a material impact on the fortunes of the company. If Mr Taraporevala's predictions are accurate, this could result in companies that are unknown today being giants of commerce in the future, and vice versa for some companies who would score poorly in ESG today. It's a great concept that I believe would be more likely to have a positive impact on climate change than any amount of government policy, protesting, finger pointing, or scare mongering. In terms of the markets, the big news this month was that Reserve Bank governor Adrian Orr left the New Zealand official cash rate unchanged at 1.00% (many pundits were predicting a rate cut). This had an immediate effect on the NZ$ which strengthened sharply against most of its major trading partners. Aside from that, share markets were mixed with Japan and Germany being the strongest performers at 7% and 5% respectively, whereas New Zealand was the weakest at -2%. Here are the numbers: |
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In terms of your Select Wealth Management portfolio, there is nothing material to report at this stage. We meet with our researchers JMI Wealth next week again, but I don't expect that there will be anything material to come from the meeting. Business as usual at this stage. Finally, a quick update on our Giving Back program for Hutt Valley Gymnastics. We are now drawing to an end of the campaign, and are on track to achieving our goal of donating $2,500 to the Hutt Valley Gymnastics. Check out our progress at www.mifinancialplanning.co.nz/giving-back.html. Once again, thank you so much for the referrals of your friends and family so that we can continue to fund this program - we really appreciate it. Warm regards Dave and the team at Isaacs Financial Planning dave@mifinancialplanning.co.nz |
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This newsletter is intended for general distribution and does not constitute personal financial advice. Copy of my primary disclosure statement and secondary disclosure statement.