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The EdenTree Blog

Our blog aims to bring you the latest insights and reactive commentary from our fund managers, analysts and responsible investment team as we navigate unprecedented times in financial markets and for responsible and sustainable investors.

Ketan Patel, co-manager of the Amity UK Fund gives us his thoughts on the recent news of vaccine breakthroughs:

The recent positive progress that has been shown by a number of vaccine trials is much welcome, in what has been a difficult year for fund managers. However, it needs to be tempered with a view that this isn’t a silver bullet to kill the pandemic. We have a long way to go before we can claim any form of victory against the virus. There are still safety and efficacy concerns to be addressed, and hopefully more positive clinical data will emerge in the coming months. The biggest concern for us is on storage and distribution on the Pfizer/BioNTech vaccine, which requires very cold temperatures across the whole supply chain. In addition, the manufacturing capability will need to be ramped up significantly to meet global demand. However, it should be noted that there are other vaccines in late development as well and this augurs well for 2021 and beyond.

As a result, in recent days a number of sectors that suffered initially during the lockdown – banks, travel and leisure & hospitality – have bounced back markedly, albeit from significant lows. Further out, the demand for energy will rise as pent up demand is potentially released with greater consumer activity as lockdown measure ease next month and into 2021. We remain positive on diagnostic, medical technology and pharmaceutical companies which are well positioned to take advantage of any further positive news on the vaccine. In addition, a positive outcome on Brexit could lead to the UK being less of an investment pariah to asset allocators, which will be very welcome after a tough 5 years since the decision to leave the EU in 2016.

Fixed Income Fund Manager David Katimbo-Mugwanya reflects on the recent developments that have boosted markets:

Since the end of 1st quarter of the year, three major risks have dominated the headlines and market participants’ thoughts by extension. The recently concluded US presidential elections, the impact of the COVID-19 pandemic and post-Brexit UK-EU trade negotiations.

Over the past week alone, rays of light are piercing through two of these dark clouds with news of a divided US government and Pfizer’s vaccine breakthrough lifting risk sentiment and sovereign bond yields rather sharply as a consequence. In light of these events, the probability of negative interest rates out of the Bank of England has arguably reduced. It is worth adding that internal Monetary Policy Committee members have been noticeably less enthusiastic in endorsing the policy tool on these shores. After all, they voted to extend the central bank’s Asset Purchase Programme by a larger-than-expected £150 billion in early November.

With the pandemic response having taken centre stage over this timeframe, it is apparent that Brexit negotiations have come somewhat lower on the list of UK government’s priorities. Suggested ‘final’ deadlines on talks have proved more elastic than finite in fact. The adverse impact of the latest COVID-related restrictions to business activity on both sides of the English Channel may add impetus to ongoing discussions. A deal is there for the making, we have heard. It is a common saying in London, that one waits patiently for a bus, only for three to appear at once. Tangible follow-through on these negotiations could be the third proverbial bus that boosts risk markets once again in 2020.

November might seem just around the corner, but in political terms it is a lifetime away. Thomas Fitzgerald, co-manager of the Amity International Fund, looks at what the upcoming US presidential elections might bring investors:

History suggests in the absence of a recession, presidential elections in the United States strongly favour the incumbent. Out of only five incumbent presidents losing re-election, three of these were during a recession. 2020 is also set to be a recession year, and based on recent poling data, former Vice President Joe Biden appears well positioned to become the 46th President of the United States.

Public sentiment has changed materially over the last few months with approval ratings for President Trump dropping significantly. Odds makers currently give Biden an approximately 58% chance of winning the election. However, at this stage, market participants should be cautious about drawing a firm conclusion on the election. COVID-19 outbreaks could significantly affect voter turnout, particularly in states that do not have easily accessible vote-by-mail policies.

While it is difficult to determine the probable outcomes at this stage, the impact that any president can have on the economy and market depends on their ability to enact legislation. To be able to put in place more controversial policies, control of both the House of Representatives and the Senate is necessary. It is difficult to see President Trump regaining control of the House of Representatives, were he to win. Similarly, it is difficult to see the Senate shift to a Democrat majority. Therefore, a divided Congress appears the most likely outcome.

While political gridlock is not a desirable scenario, it may comfort investors to know that it could act as a considerable restraint on the more radical proposals on both sides. Regardless of the election outcome, it seems unlikely the trade conflict with China will be fully resolved, which may prove to have a greater impact on global investment markets than the composition of Congress or the governing administration.

A look at EdenTree’s 2020 PRI reporting

As a signatory to the Principles of Responsible Investment (PRI) since 2013, each year EdenTree subjects itself to a rigorous assessment of our organisation; our RI processes, activity, strategy and governance by the PRI.

PRI reporting is the largest global reporting project on responsible investment, aimed at providing accountability, transparency and feedback to the responsible investment community. We were thrilled to once again to have achieved great scores across the board, including an A+ rating for RI strategy and governance.   

A summary of our main scores is above, and the full assessment report is also available on our website, here.

We reflect on the recent revelations around fast fashion retailer Boohoo, and what the episode can teach ESG investors:

The recent media attention on Boohoo and the alleged exploitative working conditions at its factory in Leicester has been shocking – although unfortunately, not altogether unsurprising. The reality is that it is very hard to produce a £5 dress without cheap labour appearing somewhere in the supply chain.

For the investment management community, this has also been embarrassing. There were twenty funds labelled as ‘sustainable’ that counted Boohoo as a holding, and the stock was AA rated by MSCI on ESG factors. It highlights the propensity for greenwashing and an overreliance on ratings providers to be at the core of many asset managers responsible and sustainable investment propositions.  

We originally screened Boohoo back in 2014 when the company first IPO’d, and it failed to pass our ESG/ responsibility screen. Were we do have exposure to clothing and apparel companies, we look for strong supply chain management and carefully managed environmental impact. Fast fashion falls woefully short in most respects within these two core areas.

Above all, perhaps what this episode teaches ESG investors is the underlying importance of looking for responsibly run businesses to invest in and in doing their own research into these companies; by getting that right, investors will be better placed to seek out those real leaders in sustainability.