Strong performance of Impact Investment ETFs in 2019 Q3 and Q4 signal positive change can be met with profitability, while questions arise on potential yields for ETFs moving forward
TORONTO, ON / ACCESSWIRE / August 6, 2020 / Whoever said that doing good for the world and making money could not go hand in hand, was put simply, very wrong. In fact, in Q3 and Q4 of 2019, Impact Investment ETFs (geared towards generating positive environmental or social change alongside financial gains) actually outperformed investments in traditional categories.
In fact, the number one best-performing ETF of 2019 was Investco Solar ETF (TAN), which saw gains up to 51%. The market-cap-weighted ETF holds 22 stocks related to solar energy including Solaredge Technologies, First Solar and Sunrun as some of its top holdings. Q3 and Q4 of 2019 saw TAN and other ETFs geared towards renewable energy, lowering carbon emissions or contributing to social and community empowerment outperformed conventional index funds
Although these strong gains over a significant period of time demonstrate that Impact Investing can be as profitable, if not more profitable than traditional methods, the future of ETF investing may now have some unprecedented uncertainties moving forward from the COVID-19 crisis.
On March 15 2020, the US Federal Reserve announced a benchmark interest rate cut to near zero, followed by an estimated $3.5 trillion Quantitative Easing (QE) initiative to stimulate the economy and minimize disruption from the pandemic. This QE strategy, whereby the Federal Reserve prints new money to inject into the economy, has seen more government money enter the market from March to today's date than the government ever invested throughout the entire 2008 financial crisis. This move accomplished in one day what was rolled out over the course of several months in the 2008 and marks what Jerome Powell, chair of the US Federal Reserve calls "quantitative easing to infinity".
What follows such a massive QE program such as this? Most experts would agree: Inflation. With artificially high prices amidst a total slowdown of global economies, investors will need to be savvy moving forward to protect their cash.
With today's realities of the market, it is becoming more and more clear that investors are wise to either/or:
Maintain cash holdings, with a finger on the trigger to buy at a discount if/when prices drop
Invest in hard assets that act as inflation hedges such as gold, silver, discounted real estate, and forestry.
Why these hard assets? Gold and Silver have traditionally performed well in times of inflation because their price in US dollars is variable, meaning if QE programs devalue currencies, the price of gold will rise and cost more dollars per ounce as a result. For those that seek to enter or increase their holdings in real estate markets, inflation typically creates uncertainty in real estate markets, providing buyers with an opportunity to buy at discounted prices.
Forestry is often overlooked as a hard asset to hedge against inflation, despite its strong performance in both weak and booming economies. Since forestland is able to grow regardless of how the economy is performing, it stands as a great risk-averse investment with low correlation to other investment classes. Similar to gold and silver, the price of timber is variable and will rise as inflation grows. Forestry is also proven to be an Impact Investment by adding oxygen, storing carbon, rejuvenating soil minerals and providing shelter for wildlife. Companies such as EcoForests Assset Management have delivered returns of approximately 7%-9% per year for investors seeking to participate in environmentally sustainable and socially responsible forestry investment projects.
For those seeking to continue Impact Investing mandates in a post-Coronavirus era, the future of hard assets is looking stronger than ever, compared to ETFs and Funds that would see drops in value if inflation continues to rise and the "QE to infinity" bubble we are seeing bursts.
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SOURCE: Ecoforests Asset Management