Tom Tells Us How We Can Create an ESG Portfolio.
Transcript:
Tom Vaughan:
Okay, so she’s saying that with the change in administration, you know, that whoever asked the question would like to do some more, you know, social responsible investing, is this something where I will, you know, not make as much because I’m, you know, narrowing down the field and what have you. Actually, that’s quite true originally, you know, go back to 1987, the social responsible portfolios that we had always underperformed our normal portfolios, but I call it a traditional portfolios. And, and that was okay. Right. That was that was a group that was investing in that didn’t really care as much about a return as they did, you know, making sure that their money wasn’t in places that they didn’t want to be. And so but things have changed right now, actually, the whole concept of, of social responsible investing has exploded, there’s now roughly $16.6 trillion dollars of money invested in socially responsible concepts.
The biggest change is what’s called ESG. Investing. So ESG stands for environmental, which obviously, is a company’s impact on the environment. S stands for social, so the company’s environment on the community. And G stands for governance, you know, what’s the board made up? How do they take care of their employees, those types of things. And there’s a couple big companies, one called Sustainalytics, and another one, Ms. CI, and they now rate companies on ESG. That’s a given number for each one, E, S, and G. And then they give a total number. And so what has happened now is you’ve been able to get these companies like like Vanguard can take their entire Vanguard has what’s called a total stock market index, this ticker symbols VTI, has about 3600 stocks, and they can apply an ESG screen. So only adding those stocks out of those 3600 that meet a certain ESG number criteria. And so it’s very simple, and it’s very effective. And they can do it on a non managed basis. So it’s very inexpensive, super inexpensive internally. And all of a sudden, the ESG portfolios are, at least in the last two years, they’ve either been matching or beating our traditional models, and it’s a really amazing area. And so I think this current administration just continues to push that forward.
Clean Energy is one of the pieces that you’ll often see in an ESG type portfolio. And let me share just real quickly here, you know, an example let me pull it up here, of, you know, kind of our current one of our current clean energy portfolio. So this is, you know, one of our models that we are using right now. And so, you know, we kind of have a Naveen ESG, large cap. And again, what Naveen has done is taken big companies and applied an ESG screen, and you know, we can buy that we have a mid cap from UVA. Now, these are both value plays, again, because I think value is going to be a place that makes more money throughout this year. And then we have a small cap, we have another small cap again, in a recovery and a reopening small caps generally do well, the SR IO shares now I shares is owned by a company called BlackRock. They’re probably the leaders in ESG.
Right now, they’re really pushing this and opening up lots of new funds. And I think this is an international ESG and PIMCO and flex shares both have an ESG and this is a really interesting one. This is one of our winners today. Forgot what’s up point 8% today, not bad. This is a global water ESG piece, I think, is really fascinating. So anyway, there’s a lot of different, you know, pieces that are out there, you can actually create portfolios, like you’ve just seen, this has developed tremendously, even in the last three years. So it’s a great place to take a look, you know, in terms of, you know, the investing side of the world here too, so