11 Jul Genus Weekly In Focus – Addressing COVID-19 Concerns Week-17
COVID-19 is still a certainty in our lives, but maybe not for long: rumours of a vaccine start to be a conversation in the markets. Pandemic winners and losers start to be balanced, and Climate Change turns to a permanent conversation in the markets.
Leslie Cliff: [00:00:01] So welcome. This is our Genus Friday video. With me today is Mike Thiessen. He’s our director of Sustainable Investing. And Mike, let’s just get right into it, because it was a very interesting week. What, how did you see it?
Mike Thiessen: [00:00:16] Yes, this week was interesting, there wasn’t wasn’t too many big macro pieces of news this week, but it all started out with Chinese state media saying that it’s very important to foster a healthy bull economy or a bull market. And so investors took that as the Chinese government is going to basically help boost the economy. So the Shanghai index went up about six percent and S&P 500 went up over one percent on that news. So that kind of started the week off with a bang. And then from there, the news was kind of mixed. Some negative news out of Europe saying that their economic forecasts are coming in lower than expected. But in the US, the St. Louis that was saying that’s unemployment, they think is actually going a bit lower than expected. So positive there. And then, of course, mixed news around COVID-19 cases going up. But then some news out today, Friday, about some positive developments with the vaccine. So.
Leslie Cliff: [00:01:18] Great, so the market really, really took off on that news today. So Wayne talks about our portfolio is being in three different, our stocks being in three different buckets. And he talks about the winners in the COVID environment, which are the technology stocks, health care stocks, and he talks about the losers in the and the COVID environment, which are the industrials and materials and energy banks, companies that are associated with economic output. And then he talks about the serious losers, which we just take our hats off to people who can play those that the cruise ships and so on. So he talks about his barbell strategy we have in place. So tell tell us a little bit more about that.
Mike Thiessen: [00:02:04] Yes. The barbell strategy is kind of focused on kind of having more growth companies are kind of more of the winners on one side and then having some of the losers on the other side. So when the pandemic started, we really focused on the growth part of it and we really boosted our portfolio overweighted in those areas. But then now we’re we’re slowly moving in to the the the past losers of the pandemic, because the value is really good.
Leslie Cliff: [00:02:33] So when people get the quarterly statements, it’s good to know that when you look at the dividend fund in there, that is the value stocks with the better yield and we’ll safer but not not the performers, not the winners in the current environment. The CanGlobe Portfolio, that’s where the technology and health care stocks are. So so that’s the barbell. Those really those two funds represent the barbell.
Mike Thiessen: [00:02:59] Exactly.
Leslie Cliff: [00:03:02] When you look at the market performance, if the news is bad that day and earlier in the week when COVID cases in the USA are going up dramatically and not only cases, but death rates starting to go up, too, and yields coming down, those are bad days. That is when COVID winners have done well. And today was really an example of a turnaround where the vaccine got announced early in the trading day and the dividend fund would have performed very well today, would have outperformed the CanGlobe. So so it is a barbell and it’s more equally weighted now. The other big thing that happened this week is our minister of finance, Morneau, he announced that the pre-COVID budget of twenty eight billion dollars isn’t going to be more like three hundred billion dollars. So what did the market think of that?
Mike Thiessen: [00:03:59] So yeah. So for investors, of course, affects you negatively. Given that the deficits are 10 times larger, as you said, and so the overall net debt for Canada is over a trillion dollars or it’s gonna be over a trillion dollars. So one point two trillion dollars. What they’re expecting and then that, of course, affects our debt to GDP ratio. So our GDP has, of course, been going down, given the pandemic. It’s expected to go down about almost seven percent this year. And I was debt really skyrocketing, the debt to GDP ratio has went for about third , which is kind of 30 percent, which is a good number, up to almost 50 percent. So it’s really jumped significantly. And a large part of the overall increase in deficit is from increase in spending. You know, the support for individual Canadians, for businesses. And then another big part of it is just lower tax revenues just giving GDP decrease.
Leslie Cliff: [00:05:02] In shorter term, the dollar didn’t really move very much. Are you surprised by that?
Mike Thiessen: [00:05:09] I’m surprised by that, but yes. But at the same time, everyone’s going through something similar. So if you’re relating this to other areas in the world, everybody’s increasing their debt loads, everybody’s GDP is going down. So it’s not like relatively we’re doing a lot worse than everywhere else.
Leslie Cliff: [00:05:26] So we’re not ready to really get our arms around the elephant yet. But just FYI, we will be holding a panel of experts seminars you know, probably three, six months from now and try to get some experts in to tell us where is the government going to get this money from and where are your taxes going up because they will be. So we’ll try to get some good experts in to talk about that. A client had a question. I’m just gonna preface it with just asking you. We have a fund called the Impact Fund. That and maybe you can just describe what that fund is Mike.
Mike Thiessen: [00:06:01] Sure. Yeah. So we have a Fossil Free Impact Fund. And this fund focuses on investing in companies that are that are providing solutions to big problems around the world. So companies that are mitigating climate change or companies that have health care solutions or education solutions. So it’s quite an exciting fund to be a part of it because it is quite positive where we’re just looking at kind of the companies that are making a difference. And we really want are we make sure that all of the companies are contributing towards a sustainable development goal. So these are…
Leslie Cliff: [00:06:37] As identified…
Mike Thiessen: [00:06:37] 17 goals set up by the U.N.. They vary from from education to health care to clean affordable energy, zero poverty, things like that. And we want at least 50 percent of the revenue from the average company in that portfolio to be coming from a product or service that is contributing towards a sustainable development goal. So 50 percent of the revenue has to be making an impact.
Leslie Cliff: [00:07:03] Right. So with that introduction now, the question from the client is what two or three holdings do we have in that impact fund that are helping mitigate climate change?
Mike Thiessen: [00:07:13] Yes. So there’s there’s quite a few. So a few of them are our Vestas wind. We have Burkley Group and Citrix Systems. So with with Vestas Group or with Vestas Wind, they they design, they manufacture, they install wind turbines all around the world. I think about 18 percent of the world’s wind turbines around the world come from Vestas Win. With Berkeley Group, they’re a green homebuilder in the UK. So the vast majority of their homes rely on renewable energy or really low carbon emitting energy sources. And then the last one, Citrix Systems is a tech company that focuses on cloud computing. Most of the largest companies in the US use Citrix Systems in some way. So there’s a good chance that all of us have used Citrix Systems that are behind the scenes and we we don’t really even know. But cloud computing is much more energy efficient than local computing. So just so because of that, we’re using less energy and less emissions.
Leslie Cliff: [00:08:15] Great. Well, it’s great to have accountability in there. Come September, our clients will get in their September quarterly report. Actual report card on how portfolio looks on emissions and ESG score is relative to the index. So that’s a needed addition and we’re excited about that. Let’s everybody get at your summer weekend. The only thing that’s news today, I thought it was a treatment, but it’s a vaccine even even better. I thought of the one I really think was from Dr. Henry that it would spend to get COVID now then in March. But it will be better later. Be safe and have a great weekend. We’ll see you next week. Thank you very much.
Mike Thiessen: [00:08:59] Thank you.