Saint or Sinner

How should we invest our money, Does it make sense to invest like a Saint or like a Sinner? ESG (or environmental, social and governance) investing is one of the hottest things in markets right now, with large fund managers competing to be seen to take ESG more seriously than the next. Setting aside any moral judgements, the commercial rationale for the investment management industry is pretty clear: ESG funds have attracted about $350bn over the last two years, almost twice as much as the rest of the stock fund universe combined.

Hottest things in markets right now, with large  fund managers competing to be seen to take esg   more seriously than the next. setting aside any  moral judgements, the commercial rationale for   over the last two years, almost twice as much  as the rest of the stock fund universe combined.  in the first six months of 2021, more

Esg-related  bonds were issued than in the full year of 2020.   it appears to be growing quickly. more than 17  percent of bonds issued last month were labelled   saudi arabia’s public investment fund has even  gotten in on the esg trend having announced that   of green bonds. i’m sure you can do green   investments in

Saudi arabia, and lots of investors  would be delighted to get involved in this.   i’m not entirely sure how esg scores  unelected leader who occasionally kidnaps his  critics abroad, tortures and dismembers them,   will lose a few esg points. but at least they are  showing a commitment to the energy transition.  the opposite

Of esg investing is investing in sin  stocks (or vice investing) – a term for investing   in companies that engage in a business or industry  that’s considered unethical, immoral, or unsavory.   companies in the weapons, alcohol, gambling,   socially responsible investing and ethical   other companies and industries that

People   environmentalists for example might classify   companies in that space are polluters. vegans   might consider any company that raises animals  or sells animal products to be a sin stock.   some might even call alphabet (the parent company  of youtube) a sin stock as people binge-watching   youtube videos are

See also  How To Find The Budget You Can Actually Stick To

Indulging in sloth. that’s  crazy talk though, don’t listen to those people,   different societies at different points in time  disagree as to what is considered acceptable   behavior. a good example is the way the western  and eastern cultures view debt. in the western   business practice and is even rewarded with  

Government tax incentives. but for thousands of  years in eastern cultures, borrowing money, which   implies the inability to live within one’s means,  is viewed as “losing face.” in muslim countries,   interest. so, muslim investors can only receive   (millennials) are leading the charge into esg  or socially responsible

Investing, but in fact   over the last five years boomers have moved from  having less than half of a percent of their assets   in ethical funds to over 5%. millennials have  around 4% of their assets in ethical funds,   which has the carbon footprint of sasquatch. around how these different styles of investing  might work out

In the long run. does ethical   investing improve the world, and should an ethical  investor expect to outperform a vice investor?  how esg investing might improve the world,   but they can’t both be right. the first theory is  that investing in positive (or “good”) companies   will improve the world by raising the cost

Of  capital for bad companies, the idea is that   seeing this higher cost of capital will encourage  unethical businesses to shift to a more ethical,   this is an appealing theory because it makes   some rough sense as a matter of economics. it  has problems though. for one thing, you have to   have an awful lot of

Money invested this way to  meaningfully increase the cost of capital for sin   stocks. even huge asset managers like blackrock  or fidelity can’t actually point to unethical   companies that they put out of business just by  refusing to buy their stock or buy their bonds.   raising the cost of capital of sin stocks  

See also  00,000 Salary = BROKE (here's why)

Means increasing the expected returns of these  securities for those who choose to invest in them.  the logic of raising sin stocks cost of capital,  implies that an ethical investor in the long run   will get lower returns than a sin stock investor,  because ethical investors are going to push up the   can be seen in the bond market

Where green   as you can imagine the marketing teams at esg  funds are not pushing the idea that they improve   the world by giving you a lower return on your  investments. it is just not a great sales pitch.  and increased regulation of business practices. the pitch is that if you are at the front of this   trend, you’ll get

Better returns than those who  are stuck in the past investing in guns, tobacco   and extractive industries that will be obsolete  when regulations and societal norms change.   that tells the client a good story — “you can  be ethical and get rich from it too” — but,   the investment strategy improves the world.  it

Profits when governments move faster than   expected to regulate certain industries, but the  investments themselves do nothing to bring about   these changes. this argument is not that you are  improving the world by your style of investment,   it is instead saying that the world is changing  on its own and you are investing in

The future   well, frank fabozzi from nyu studied the   twenty one countries around the world. he found  that over the period sin stocks generated excess   another study by hong and kacperczyk, found  that less “norm-constrained” investors such   there are many possible causes for this  performance difference. sin

See also  How I Got the iPhone 13 Pro for .99/Month

Stocks might be   systematically cheaper than their fundamentals  would suggest, just because certain types of   additionally be facing less competition   as new competitors would struggle to raise capital  in today’s environment. that protection allows   sin stocks are exposed to risks like regulatory  

Tax risks, where governments often increase taxes  on things like tobacco or alcohol in order to   reduce demand for them while raising revenue.  there are often other legal risks like the risk   that a company that makes a dangerous product  could be sued by a customer who was injured. the   higher returns investors make on

These investments  might just be compensation for taking these risks.  investing to vice stock investing you can compare   the returns of a mutual fund called the vice fund  to the returns of your favorite esg fund. the vice   fund has been around since 2002, and according  to their prospectus, they make best-in-class  

Equity investments within the global tobacco,  alcoholic beverages, gaming, and aerospace/defense   industries. they have higher than average fees,  but have mostly outperformed the stock market   on a risk adjusted basis since inception. the vice  fund has not done as well recently, as investments   in aerospace and casinos

(For example) were ill  suited to the covid19 pandemic. most esg funds or   indices that i have looked at are heavily weighted  in technology stocks, and exclude energy stocks.   let me know your thoughts in the comments  section as to which investing style you prefer.   into esg portfolios. are companies like  facebook,

Apple and amazon more ethical   oh, one last thing, if you enjoy this content,   but want to listen on the go, you can find it  as an audio only podcast on apple podcasts,   patrick boyle on finance. see you later, bye.

Transcribed from video
Saint or Sinner By Patrick BoyleliveBroadcastDetails{isLiveNowfalsestartTimestamp2021-08-10T141520+0000endTimestamp2021-08-10T142738+0000}

Scroll to top