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Research indicates that investment strategies that incorporate Environmental, Social and Governance (ESG) criteria can deliver returns similar to, or better than, traditional investments with equal or less risk. Institutional investment managers that are actively involved in Sustainable, Responsible and Impact (SRI) investing also deliver measurable impact by directly engaging companies on the issues that matter most to their investors. Generally, we refer to this kind of activity, which includes dialog with management, collaboration with stakeholders and shareholder resolutions, as shareholder advocacy. Green Century Funds has a long history of successful shareholder advocacy and the following are two excerpts from their recent wrap-up of their work in 2016.

Reducing the Use of Antibiotics in Agriculture

Antibiotic resistance is a global health crisis that kills 23,000 people annually in the United States and is expected to kill 10 million people a year globally by 2050. The overuse of antibiotics in animal agriculture is a major contributor to this crisis, which is why Green Century is a leading investor engaging companies on reducing the use of antibiotics in animal agriculture. This year, Green Century worked with both Starbucks and Jack in the Box (owner of Qdoba Mexican Eats) to craft and implement policies that eliminate the routine use of medically important antibiotics from the companies’ poultry supply chains by 2020. These commitments will impact products sold in over 10,000 stores nationwide.

Sustainable Protein

Livestock production is responsible for more than 14.5% of global greenhouse gas emissions – more than the entire transportation sector. Moving towards more sustainable sources of protein is an important part of combating climate change. Green Century filed the first ever plant-based protein proposal with Tyson Foods, the second largest poultry company in the world. Following this proposal, Tyson took an ownership stake in Beyond Meat, a leading plant-based protein company, and has become a proponent of the plant-based industry.

2017 Q3 Review

Yet another strong quarter for investment performance!

The U.S. stock market is showing resilience, even in light of stretched valuations. Generally, small cap stocks earned more than large cap stocks and the growth style again outperformed the value style…a continuation of this year’s trend. The best performing sectors in the S&P 500 Index in Q3 included Technology (+8.6%), Telecom (+6.8%), and Energy (+6.8%). The worst performing sectors during the quarter included a more defensive sector, Consumer Staples (-1.3%), as well as Consumer Discretionary (+0.8%) and Real Estate (+0.9%).

Non-U.S. stocks, in both developed and emerging markets, continued their resurgence. During the quarter, the best performing countries included Brazil (+23.0%), Russia (+18.1%), and China (+14.8%). Countries whose stock markets delivered lower returns for U.S. investors included India (+2.9%) and Japan (+4.1%). The U.S. Dollar generally fell (again) relative to most other currencies, increasing returns for U.S. investors in international stocks, although the dollar seems to be stabilizing in recent weeks.

The fixed income markets also delivered positive returns for the quarter as lower credit quality bonds led the way, consistent with an optimistic stock market. Cash (money market funds) yields remained low and steady during the quarter.

Here are the returns for select market indices for Q3 and YTD 2017 (as stated in U.S. Dollars):

This and That

The U.S. stock market (S&P 500 Index) has advanced 272% since the market bottom in March, 2009. This is the second longest bull market on record. During the same period, non-U.S. stocks (MSCI All Country World Index ex-U.S.) have gained “only” 117%. 1

Amazon announced that it is seeking a location for a second corporate headquarters, and it is no surprise that 50 cities have expressed interest in bidding for HQ2. Moody’s Analytics did an analysis of cities that would be most likely to win the bid, based on Amazon’s stated preferences and relevant economic factors. According to their analysis, Austin, TX comes in first place, followed by Atlanta and Philadelphia. 2

Richard Thaler, a Professor at the University of Chicago, Booth School of Business, was recently awarded the Nobel Prize in Economics for his pioneering work in the area of behavioral economics. This field of study combines psychology and economics, and concludes that human beings do not act rationally when making financial decisions, contrary to the more pure efficient market theory. In 2016, Michael Lewis wrote an interesting and entertaining book, The Undoing Project, about Daniel Kahneman and Amos Tversky, two psychologists who influenced Thaler’s work.

“I arise in the morning torn between a desire to improve the world and a desire to enjoy the world. This makes it difficult to plan the day.” – E. B. White

Thank you for being a Falcons Rock Impact client and advocate…you make our jobs worth doing!

Gregory D. Wait, President

Falcons Rock Impact Investments, LLC

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1 JPMorgan Guide to the Markets, Q4 2017

2 Where Amazon’s Next Headquarters Should Go, Moody’s Analytics, October 12, 2017