In Client Letters

I’m sure you’ve heard this expression before, but there are reminders in my life every day that the only constant is change.  How about you?  While I learned firsthand a couple of years ago that extreme change can literally happen in a heartbeat, real change is happening every second of every day, and we all adapt…knowingly or not.  In his book, Next Is Now, Lior Arussy suggests that many individuals experience frustration or even failure with changes because they treat change as an event – often an unpleasant one – that they need to get through.  You can’t schedule change; it schedules itself whether you like it or not.

There is no better example of obvious daily change than in the financial markets and global economies.  What makes the stock market so rare is the minute-by-minute scorecard that is produced by the exchanges.  Investors can literally see change in real time and react to it.  However, as I’ve described frequently, investors’ response to this real time data is often counterproductive.  The ability to adapt to market changes is made better within the context of the bigger picture objectives of the investor.  Changes to investment strategies are best made due to changes in an investor’s objectives, which, of course are inevitable.

Adam Grant, author of the book Originals, describes how original thinkers change the world and provides some insightful actions for impact.  I believe that sustainable and responsible investing is having a powerful impact on organizations and people around the globe, and we have embraced this approach.  By combining responsible investing with technology, we have created a unique service in the marketplace with Falcons Rock Impact Investments.  I hope that we can serve as an example of an organization that has embraced change.

The reality is that human beings are incredibly resilient and adaptive to change, because we must be to survive.  We cannot control life’s twists and turns, but we can control our response to them.  The next time you feel the weight of change, try challenging yourself to have a childlike optimism toward a new experience…you never know, it could make all the difference!

2019 Q2 Market Review

During the quarter, all broad stock market indexes continued their resurgence, albeit with a mid-quarter swoon. Large cap stocks gained more than small cap stocks and growth stocks retained their edge over value stocks. Nearly every sector in the US stock market delivered positive returns. The best performing sectors in the S&P 500 Index in Q2 included Financials (+8.0%), Materials (+6.3%) and Technology (+6.1%). The worst performing sectors during the quarter included Energy (-2.8%), Health Care (+1.4%) and Real Estate (+2.5%). On a year-to-date basis, the S&P 500 experienced its best start to a year since 1997, while reaching all-time highs.

Non-US developed and emerging markets stocks also advanced during the quarter. US fixed income markets again generated positive returns in Q2, as interest rates fell. The corporate bond sectors led the way during the quarter, while cash yields flattened a bit. The broad commodity index fell as global inflation appears to be subdued.

Here are the returns for select market indices for Q2 (as stated in US Dollars):

Responsible Investment Corner

Earlier this year, the US SIF Foundation published its 2018 Report on US Sustainable, Responsible and Impact (SRI) Investing Trends.  Total US-domiciled assets under management using SRI strategies grew from $8.7 trillion at the start of 2016 to $12.0 trillion at the start of 2018, a 38% increase!  SRI strategies now represent more than 1 in 4 dollars of total US assets under professional management.  Since 1995, when the US SIF Foundation first measured SRI, assets have increased 18-fold, a compound annual growth rate of 13.6%.  The top environmental, social and governance (ESG) criteria used by money managers and institutional investors are:  Conflict Risk (terrorist or repressive regimes), Climate Change/Carbon, and Tobacco.  Other prevalent ESG criteria includes:  Human Rights, Transparency/Anti-Corruption, Board Issues, and Executive Pay.

BlackRock recently released a paper entitled Getting Physical, Scenario Analysis for Assessing Climate-Related Risks, which describes a process that can be used to analyze the effects of climate-related risks on investment portfolios.  This very large investment firm collaborated with Rhodium Group to analyze 160 terabytes of data to assess direct physical risks to assets on a local level, both today and under different future climate scenarios – and determine whether the risks are adequately priced by markets.  In the introduction to their report, BlackRock concludes that “our early work already strengthens our conviction that sustainable investing is increasingly a ‘why not?’ proposition.”

You can learn more about sustainable and responsible investing and its positive impact by checking out our blog posts.

This and That

  • Trade tensions have been a boon for Brazilian soy. While US soybean exports to China have fallen dramatically since August of last year, Brazilian soybean exports to China have increased each month.
  • Four of the six worst performing stocks in the S&P 500 YTD through 6/30 are department stores or clothing retailers.2
  • By the year 2035, the number of Americans at least age 65 (projected to be 78 million) will exceed the number of Americans under the age of 18 (projected to be 76.4 million), the first time in our nation’s history that has occurred.3
  • “Don’t let what you know limit what you can imagine.” – William C. Taylor
  • “The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.” – George Bernard Shaw

You’ll notice two closing quotes in this letter because I think both are particularly relevant to my change theme.  Through the various changes we have made over the years (and more improvements to come), we greatly appreciate the loyalty of our Falcons Rock clients…thank you!

Gregory D. Wait, President
Falcons Rock Impact Investments, LLC

1 Moody’s, June 27, 2019
2 BTN Research, via MFS By the Numbers, July 8, 2019
3 Census Bureau, via MFS By the Numbers, June 17, 2019