Socially Responsible ETF Funds Attract Investors in Record Numbers
ESG Sector Doubles in 2020
So far in 2020, investors in the US have allocated $27.4 billion to exchange-traded funds that focus on socially responsible practices. The trend has doubled the size of the environmental, social, and corporate governance sector, also known as ESG. As investors look ahead, many expect the Biden administration could introduce climate change legislation which would help socially conscious funds gain even more attention.
This year asset managers like BlackRock (BLK) have launched 31 funds related to socially responsible investing. There are currently over 100 socially conscious ETF products on the market in the US, and that number is likely to climb.
Landscape Reflects COVID Changes
Critics had previously questioned the staying power of ESG funds, but the current trend suggests socially conscious funds are here to stay. That endurance has to do with stay-at-home stocks that have performed well during the coronavirus pandemic. For example, the Nuveen ESG Mid-Cap Growth (NUMG) ETF includes holdings like Twilio and Slack Technologies. Those companies’ shares have swelled this year, bringing the whole ETF up 42%. For comparison, the S&P 500 has grown 14% this year.
During the coronavirus pandemic, investors have been particularly interested in high-performing technology stocks. Those technology companies also tend to be likely candidates for ESG funds. For example, Alternative energy producer Plug Power’s (PLUG) shares have climbed eightfold this year.
ESG Stocks to Watch in 2021
Morgan Stanley (MS) strategists said they will be watching several ESG companies as socially conscious investing gains traction. These firms include the global energy company AES (AES), which is focusing on renewables and storage, and Aptiv (APTV), an automobile parts company which is focusing on creating products for electric vehicles.
The strategists also said they would be eying stocks involved in sustainable consumption. As the world’s governments start to think about how food and agriculture can adopt more sustainable practices, analysts suggest agriculture companies like Deere (DE), CJ CheilJedang, and Bluestar Adisseo could get more attention. Companies like Ball Corp (BLL) and SCG Packaging could be important in developing alternatives to single-use plastics and excess packaging on food products.
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Cannabis Companies Consolidate to Form Sector Giant
Tilray and Aphria Merge in Reverse Acquisition
Tilray (TLRY) and Aphria, two of the largest and best-known cannabis companies, plan to merge through an all-stock deal. The new company will be worth about $3.8 billion and will be known as Tilray.
The companies’ combined sales over the past 12 months total about $685 million. This puts the new entity ahead of big names in the cannabis industry like Curaleaf Holdings and Canopy Growth. Investors seem to see the tie-up as a win-win for Aphria and Tilray. Aphira shares rose 6.5% on the announcement, and Tilray shares gained 26%.
Expanding into the Beverage Industry
Both Tilray and Aphria have dipped their toes in the business of cannabis-related beverages. Aphria agreed to acquire Sweetwater Brewing Company, which produces beverages infused with cannabis. Tilray is a partner in Anheuser-Busch InBev (BUD).
In the United States the combined company will work with Sweetwater and Manitoba Harvest to produce hemp and CBD products. In Canada the company could leverage Tilray’s beverage facilities to start making THC-infused drinks.
Deal Foreshadows Future of Cannabis
While some still consider cannabis companies to be fringe investments, analysts expect the industry to grow widely around the world in the coming years. According to consulting firm Brightfield Group, the European market will expand by 25% in 2020 compared to the year prior. This would make the European market worth $359 million.
By 2025, analyst groups like Euromonitor International expect the United States to represent 70% of the world’s $93.8 billion market. As the market grows, consolidation is to be expected. Analysts predict that companies will merge strategically for access to the large American, Canadian, and European markets.
The Perplexing Nature of Pandemic Shopping Habits
Retail Sales Fall in November
Recently released data shows that US retail sales fell by 1.1% in November. This marked the second consecutive monthly decline for retail sales, as unemployment remains high and many stores are closed or operating under restrictions. In a report, the Commerce Department suggested the drop in spending was a sign of a slowdown in economic recovery. Before October, retail sales had been trending upward since April.
Retail sales were down last month for car dealerships, clothing stores, restaurants, electronics stores, and furniture sellers. Meanwhile the United States added fewer jobs in November than it had in the six preceding months. New unemployment claims also shot toward a three-month high in the first week of December.
Spending on Luxury Goods Climbs
As overall retail spending is down, spending on luxury items is on the rise—so much so that brands like Chanel and Louis Vuitton (LVMUY) have increased their prices. Luxury groups like Neiman Marcus (NMG) and Saks Fifth Avenue say that over the past few years, they have noticed young consumers are more eager to spend money on experiences than on retail items. Now that opportunities to travel, go to concerts, and buy other experiences, are reduced, some consumers are rerouting disposable income toward luxury products.
While wealthy shoppers seem to be buying more expensive jewelry, handbags, and shoes than they would have last year, many less affluent shoppers are also splurging on premium items heading into the holidays. Because there are fewer opportunities to spend money at restaurants and many are not traveling to see family this holiday season, people are putting extra cash toward gifts, holiday decorations, and other objects that they might not normally buy. “Consumers are gilt gifting, sending bigger, better gifts, and rewarding themselves.” said Marshal Cohen, Chief Adviser at NPD Group.
Ecommerce Platforms Get Creative
Though retail sales are lower overall, much of the shopping that is happening is taking place online. This year sales on ecommerce platforms could reach $798.5 billion—up from $600.1 billion in 2019. Verishop, the ecommerce lifestyle goods platform, hopes to piggyback on that trend as it introduces a new feature called Shop Party.
The new Verishop feature invites users to host online shopping events where they can chat with friends via text and video, see what others are browsing, and “like” what is in their friends’ shopping bags. The idea is that customers who use the Shop Party feature will feel like they are shopping in brick and mortar stores with friends. So far, it is unclear whether live shopping events will take off in the United States, though they have seen success internationally, especially in China.
The retail industry has faced innumerable challenges this year. Stores and brands have also found creative ways to connect to customers as their habits have been upended. Analysts expect that many of the habits formed during this time will stick around long after the pandemic subsides.