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Invest in diversity

equal playing ground on the stockmarkets

Written by Hans Oudshoorn | 5 minutes
FRI 26-06-2020

With the images of the many demonstrations fresh on the retina - from Amsterdam, Rotterdam and Utrecht to New York and Minnesota - the call for mutual acceptance, respect and more diversity is more relevant than ever.

The demonstrations fueled by the death of the American George Floyd lead and in my circles - colleagues, family and friends - to the necessary conversations about inequality. I have also noticed that the complex subject is alive among investors. But as befits investors, they also try to think in terms of opportunities.

In other words, I have recently been asked a number of questions about the investment opportunities of companies that give great importance to diversity and people. With this article I want to help investors who value this and want to add "a positive note" to their portfolio.


What is diversity?
Diversity can take place within a society, in the form of different ethnic groups, but also in nature. In this article, the word "diversity" focuses on differences in ethnic background.

Diversity policy aims to take these differences into account. In companies and the government, this is usually reflected in the workforce. The aim is to have as many employees of different nationalities, orientation, gender, age, disabled or not disabled, religious beliefs and (cultural) background as possible.

The development of more diversity in business is largely caused by changes in the labor market over the past ten to thirty years. There are more and more people over 50, women, employees with a mental or physical disability or people of foreign origin looking for a job.


Annual rankings

The well-known American magazine Fortune, together with Great Place To Work - a specialist in the field of "culture in the workplace", has been compiling a ranking of the 100 best American companies to work for for years. Diversity policy and attention to social acceptance are important criteria for inclusion. Curious about the overview of 2020? It is also available. Those who look at it will come across some big names such as Adobe, Cisco, Hilton and Nvidia.


Diversity, ingredient of (one of) the three Ps

If you zoom in on the companies in the rankings, you will discover that their DNA contains the three Ps. In other words, people, planet and profit. The question now arises what it means when companies build their business operations and business model according to these three pillars. First of all, it means that a company involves local people when it settles in a country. The company also provides good facilities in the location, from schools to drinking water facilities. Diversity is also an important ingredient that falls under the heading ‘people’.

Does the company use biodegradable packaging? Do employees take the train or is there a bicycle plan for the staff? This also includes optimizing the distribution channel to consume less energy. Just like the use of alternative energy sources or automatic light switches. In short, everything for a livable planet. Now and in the future.

The last pillar, profit, is not only expressed in euro signs, but also in, for example, clean air. In addition, a fair salary for the banana grower or financial resources for the coffee farmer to expand his business.

The more a company scores on the three Ps, the more sustainable the company is.


ESG criteria

As an extension of the three Ps, the investment world often speaks of "ESG" instead of "sustainability". This abbreviation stands for Environmental, Social & Governance. Companies that do business in accordance with these criteria stand for a respectful approach to the planet (environment), animals and humans, and for good corporate governance. From lower CO2 emissions to the elimination of child labor, such points of attention are taken into account in the selection and management of participations in companies.

There are various indices, including the STOXX® Global ESG Leaders, in which high-scoring companies are selected from an ESG point of view. There is also a ranking at country level based on ESG criteria.


ESG investing: less profit?

Nice, this ESG philosophy, but it must of course yield something. Unfortunately it has a somewhat boring image. In fact, many investors think they can make less profit with this sector than with unsustainable companies.

They are wrong however. A Harvard study shows that sustainable investment yields even more than unsustainable. Between 1993 and 2011, the university surveyed 180 companies. Their conclusion: the financial results and investment returns of companies that had introduced ESG into their business strategy and culture were significantly better. The annual difference with the non-sustainable companies amounted to 4.8%. In addition to a sustainable world, sustainable investing therefore also generates ordinary money.


Building wealth with an eye for the environment and society?

You can of course buy Arcadis, Microsoft or Fastned shares. However, investing in individual stocks is generally more risky than diversified investing through an investment fund or ETF.

During my search, I came across two efficient building blocks to invest with a clear conscience: the UBS MSCI EMU Socially Responsible UCITS ETF (ISIN LU0629460675) and the GuardCap Global Equity Fund (EUR) Acc investment fund (ISIN IE00BZ036616). An important agreement is that both titles invest according to ESG criteria, with more than above-average attention to the S.

UBS's ETF typically has 50-60 European large cap stocks (currently including Adidas, Danone and SAP) in its portfolio, GuardCap's typically 20-25 stocks globally (now Essilor, Nike and UnitedHealth Group, among others). The ongoing charges are 0.28% (UBS) and 1% (GuardCap) per year, respectively. Both funds are listed in euros and can be traded via BinckBank - also Fundcoach - via Euronext Amsterdam (UBS) and investment fund exchange FundSettle (GuardCap).

The primary objective of the title of UBS is to track the performance of the MSCI EMU NR EUR index, for GuardCap to beat the MSCI ACWI Growth NR USD index. UBS succeeds with verve, GuardCap's investment fund knows how to beat the benchmark over the past five years: they both score five stars at Morningstar (UBS and GuardCap). The dividend, for UBS approximately 2.5-3 %% annually, is usually paid in February and August. The GuardCap fund automatically reinvests the dividend - approximately 1.25% - (no distributing variant is available). Nice by-catches for funds that do not primarily focus on dividends.


What else?

It may come as no surprise, but both names invest in stocks that score high on corporate sustainability and have a smaller carbon footprint than their peers. Overall, both funds receive five globes for the Morningstar Sustainability Rating ™. Is that all? No. The Morningstar Analyst Rating ™ is also in good shape for both funds: Gold for UBS and Silver for GuardCap. Overall, I have rarely seen such report figures in several areas.

And the main risks? You are of course exposed to market risk. When financial markets are under pressure, you will experience that too. In terms of investing like a football coach, they are solid midfielders with attacking impulses. GuardCap also has currency risk. The fund is listed in euros, but it contains many foreign companies.

In a nutshell, the titles are of interest to long-term investors who can and want to bear equity risk. And who want to have a positive effect on the environment and society with their investments ... with a good spread, also on a social level. Knowing more? Click here for more information about UBS's ETF and here for GuardCap's.

Author

Hans Oudshoorn

Hans Oudshoorn is investment trainer at BinckBank. He wrote the Dutch book 'Beleggen voor Dummies' and writes columns in several Dutch newspapers such as DFT, FiscAlert and NRC Handelsblad. 

The information in this article should not be interpreted as individual investment advice.  Although BinckBank compiles and maintains these pages from reliable sources, BinckBank cannot guarantee that the information is accurate, complete and up-to-date. Any information used from this article without prior verification or advice, is at your own risk.  We advise that you only invest in products that fit your knowledge and experience and do not invest in financial instruments where you do not understand the risks. 

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