Archiv des Autors: Soehnholz

Über Soehnholz

Geschäftsführer der Soehnholz ESG GmbH. Alles Weitere siehe Xing oder Linked-In.

ESG End: Heidefoto von Maria Schuetz als Illustration

ESG End? (Researchblog #98)

ESG End? >10x new research on tourism, waste, health, emerging markets, greenium, ESG ratings,  impact investments, investment frameworks, AI, buyouts and venture capital by Alex Edmans, Timo Busch, Uwe Walz, Christian Thier and others

Social and Ecological research

Dirty vacations: Dirty Dance: Tourism and Environment by Serhan Cevik as of September 26th, 2022 (#7): “… international tourism has a statistically and economically significant effect on CO2 emissions in a relatively homogenous panel of 15 tourismdependent Caribbean countries over the period 1960–2019. … an increase of 10 percent in the number of international visitors is associated with an increase of as much as 8 percent in CO2 emissions …. The negative impact of tourism on environmental quality occurs through several channels in Caribbean countries including carbon-intensive energy production and consumption of material resources in accommodation, transportation and other tourist activities, and changes in land use associated with tourism-related investments” (p. 13).

Advert for German investors: “Sponsor” my free research by buying my Article 9 fund. The minimum investment is around EUR 50. FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T: With my most responsible stock selection approach I focus on social SDGs and midcaps and use best-in-universe as well as separate E, S and G minimum ratings (see ESG plus SDG-Alignment mit guter Performance: FutureVest ESG SDG – Responsible Investment Research Blog (prof-soehnholz.com))

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Heidebild als Illustration für Proven Impact Investing

Proven Impact Investing? (Researchblog #97)

Proven impact investing: >10x new research on work, midlifes, climate impact, ESG reporting, impact investments, engagement, indexing, client advisors, risk measurement, real estate, fractional shares, stablecoins

Ecological and social research

More homework: Working from home around the world by Cevat Giray Aksoy, Jose Maria Barrero, Nicholas Bloom, Steven J. Davis, Mathias Dolls, and Pablo Zarate as of September 19, 2022 (#13): “… we survey full-time workers who finished primary school in 27 countries as of mid 2021 and early 2022. … first, that WFH averages 1.5 days per week in our sample, ranging widely across countries. Second, employers plan an average of 0.7 WFH days per week after the pandemic, but workers want 1.7 days. Third, employees value the option to WFH 2-3 days per week at 5 percent of pay … employer plans for WFH levels after the pandemic rise strongly with WFH productivity surprises during the pandemic” (abstract).

Advert: “Sponsor” my free research by buying my Article 9 fund. The minimum investment is around EUR 50. FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T: With my most responsible stock selection approach I focus on social SDGs and midcaps and use best-in-universe as well as separate E, S and G minimum ratings (see ESG plus SDG-Alignment mit guter Performance: FutureVest ESG SDG – Responsible Investment Research Blog (prof-soehnholz.com))

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Passive positive picture shows clouds above my hometown Eicklingen

Passive positive (Researchblog #96)

Passive positive: >10x new research on youngsters, scope 3, ESG leaders, welfare, ratings, index investing, fractional trading, NFT and more

Social and ecological topics

Slow climate awareness: The Interactions of Social Norms About Climate Change: Science, Institutions and Economics by Antonio Cabrales, Manu García, David Ramos Muñoz, Angel Sánchez as of September 8th, 2022 (#4): “We study the evolution of interest about climate change between different actors of the population … We find large swings over time of said interest for the general public … and little interest among economists …. The general interest science journals and policymakers have a more steady interest, although policymakers get interested much later“ (abstract).

Youngsters push companies: Wireless investors by Sergio Alberto Gramitto Ricci and Christina M. Sautter as of September 6th, 2022 (#135): “Millennials and GenZ’ers are increasingly powerful. … In their various stakeholder roles, they are pressuring corporations to also act … Along with this continued increase in direct investing, we are likely to see Millennials and GenZ’ers desires to directly engage with corporations (p. 12).

Advert: Check my article 9 SFDR fund FutureVest Equity Sustainable Development Goals: With my most responsible stock selection approach I focus on social SDGs and midcaps and use best-in-universe as well as separate E, S and G minimum ratings, see ESG plus SDG-Alignment mit guter Performance: FutureVest ESG SDG – Responsible Investment Research Blog (prof-soehnholz.com)

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Heidelandschaft von Gudrun Becker als Bild für den Beitrag Grüne Pillen

Green pills (Researchblog #95)

Green pills: >10 new research studies on CEO pay, climate scenarios and reporting, green and black bonds, big asset managers, green pills and responsible investing barriers, fund ratings, tail risks, hedge funds and fintech

Advert: Check my article 9 SFDR fund FutureVest Equity Sustainable Development Goals: With my most responsible stock selection approach I focus on social SDGs and midcaps and use best-in-universe as well as separate E, S and G minimum ratings, see ESG plus SDG-Alignment mit guter Performance: FutureVest ESG SDG – Responsible Investment Research Blog (prof-soehnholz.com)

Ecological and social research

Misleading climate scenarios? Institutional decarbonization scenarios evaluated against the Paris Agreement 1.5 °C goal by Robert J. Brecha et al as of August 16th, 2022: “… we … evaluate Paris Agreement compatibility of influential institutional emission scenarios from the grey literature, including those from Shell, BP, and the International Energy Agency. … Of the scenarios assessed, we find that only the IEA Net Zero 2050 scenario is aligned with the criteria for Paris Agreement consistency employed here”.

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Bild zur Heideblüte als Illustration für Responsible Investing Limits

Responsible investing limits (Researchblog #94)

Responsible investing limits: >10x new research on negative emissions, biodiversity offsets, inequality, social capital, green cost of equity, CSR, article 9, engagement, dividends, VCs, crypto

Advert: Check my article 9 SFDR fund FutureVest Equity Sustainable Development Goals. With my most responsible stock selection approach I focus on social SDGs and midcaps and use best-in-universe as well as separate E, S and G minimum ratings.

Ecological and Social Research

Climate prayers? Governing-by-aspiration? Assessing the nature and implications of including negative emission technologies (NETs) in country long-term climate strategies by Heather Jacobs, Aaart Gupta and Ina Möller as of August 9th (#3): “… countries are now submitting long-term climate strategies to the United Nations Framework Convention on Climate Change (UNFCCC) process. These strategies include within them speculative future use of ‘negative emissions technologies’ (NETs). NETs are interventions that remove carbon from the atmosphere, ranging from large-scale terrestrial carbon sequestration in forests, wetlands and soils, to use of carbon capture and storage technologies. … most estimate substantial potential for future use of NETs even in the face of acknowledged uncertainties. This, we suggest, may have the consequence of resulting in a spiral of delay characterized by the promise of future NET options juxtaposed with the simultaneous uncertainty around these future options” (abstract).

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FutureVest ESG SDG Einjahresperformance als Grafik

ESG plus SDG-Alignment mit guter Performance: FutureVest ESG SDG

Aktuell gibt es immer wieder Meldungen über angeblich schlechte Renditen nachhaltiger Geldanlagen. Mein FutureVest Equity Sustainable Development Goals R Aktienfonds (im Folgenden: FutureVest ESG SDG, vgl. www.futurevest.fund), für den ich (fast) nur strenge Nachhaltigkeitskriterien nutze, hat mit -0,3% seit Jahresanfang vergleichsweise gut performt. Er ist im aktuellen Jahr etwa ein Prozentpunkt besser als eine traditionelle passive Benchmark und vier Prozentpunkte besser als vergleichbare aktiv gemanagte Fonds (vgl. Morningstar.de und MSCI ACWI NR USD bzw. Aktien weltweit Standardwerte Blend mit Stand vom 17.8.2022).

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Zeitungen als Bild für ESG reporting

ESG reporting outperformance? (Researchblog #93)

ESG reporting outperformance: >20x new research on gender, food, climate risk, central banks, voluntary and mandatory ESG reporting and ratings, EU taxonomy, article 9 funds, divestments, voting, (debtholder) engagement, impact, capital costs, banks, conviction, SRI ETFs, islamic funds and real estate

Advert: Check my article 9 SFDR fund FutureVest Equity Sustainable Development Goals (-0,5% YTD). With my most responsible stock selection approach I focus on social SDGs and midcaps and use best-in-universe as well as separate E, S and G minimum ratings.

Social and Ecological Research

Genderlaw effects: Legal Gender Equality as a Catalyst for Convergence by Can Sever of the International Monetary Fund as of August 10th, 2022 (#4): “This paper … shows that more gender-equal laws facilitate income convergence across countries over time, thereby mitigating income inequality across countries. The results point to large economic gains from moving toward legal gender equality” (p. 26/27).

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Worsening ESG investors (Researchblog #92)

Worsening ESG: >10x new research studies on bank climate risks, ESG model problems, governance, ecology, thematic ESG investments, shareholder engagement, exclusions, fund drawdowns and venture capital

Advert: Check my article 9 SFDR fund FutureVest Equity Sustainable Development Goals (-0,5% YTD). With my most responsible stock selection approach I focus on social SDGs and midcaps and use best-in-universe as well as separate E, S and G minimum ratings.

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30 stocks are enough too diversify

30 stocks, if responsible, are all I need

30 stocks: In my last mini-survey on Linked-In I asked if 30, 300 or 3000 stocks can be sufficient for a global diversified investment portfolio. The survey answers were almost equally split between 30 and 300.

Popular cheap and expensive diversification

There is a lot of research showing that diversification is great to reduce portfolio volatility or other performance measures. Also, very diversified cheap ETFs are cheap and abundant and large mutual funds typically diversify broadly. Specialized investment boutiques often claim that any investment which is somewhat different from existing ones can improve investor portfolio diversification and therefore should be added to investor portfolios. There is little discussion though on the marginal utility of diversification. To illustrate this, think of expensive additional private capital investments which may reduce measured portfolio volatility but are expensive.

Sustainability as gamer-changer for diversification and research on minimum diversification

Sustainable investing may change the focus on diversification. If one starts with the most sustainable investment, every additional investment reduces the average sustainability of a portfolio (see Nachhaltiges Investieren: Konzentrieren statt diversifizieren?).

There is some research showing that concentrated portfolios can perform well, e.g. Portfolio Diversification: How Many Stocks Are Enough? As of Feb. 17, 2015 by Larry Swedroe. That research suggests that about 100 stocks may be sufficient.

Portfolio concentration and the performance of individual investors by Zoran Ivković, Clemens Sialm, and Scott Weisbenner as of March 7, 2005: “Stock investments made by households that choose to concentrate their brokerage accounts in a few stocks outperform those made by households with more diversified” (abstract).

Best Ideas by Miguel Antón, Randolph B. Cohen, and Christopher Polk as of Nov. 12, 2012 finds: “… the best ideas of active managers generate up to an order of magnitude more alpha than their portfolio as a whole … The poor overall performance of mutual fund managers in the past is not due to a lack of stock-picking ability, but rather to institutional factors that encourage them to overdiversify … We point out that these factors may include not only the desire to have a very large fund and therefore collect more fees [as detailed in Berk and Green (2004)] but also the desire by both managers and investors to minimize a fund’s idiosyncratic volatility: Though of course managers are risk averse, it seems investors may judge funds irrationally by measures such as Sharpe ratio or Morningstar rating. Both of these measures penalize idiosyncratic volatility, a penalty whose benefits in a portfolio context are extremely questionable” (p. 32).

On Diversification by Ben Jacobsen and Frans de Roon as of Nov. 21st, 2012: “Over 60% of the time we cannot reject our null hypothesis of stock picking in favor of well diversified benchmarks, even for individual stocks. Stock picking dominates during recessions, diversification during expansions” (abstract).

The Decision to Concentrate: Active Management, Manager Skill, and Portfolio Size by Keith C. Brown, Cristian Tiu, and Uzi Yoeli as of September 7th, 2017: “… we present a simple theoretical model showing that the greater the manager’s skill level, the more concentrated the portfolio should be. Second, we conduct an extensive simulation analysis of the capacity to make accurate ex ante security return forecasts and show that skilled managers would select only about 3-20% of the available securities and that the portfolio concentration decision is directly proportional to investment prowess. Finally, we provide an empirical examination of the actual skill-concentration relationship for actively managed U.S. equity funds over 2002-2015, documenting that managers who demonstrated skill in the past do form portfolios with higher concentration levels” (abstract).

Note: Also see some more recent contributions in Diversifikationsgrenzen und mehr neues (ESG) Research – Responsible Investment Research Blog (prof-soehnholz.com)

30 stocks: Test-it-yourself

You can test the limited effects of diversification yourself. A simple approach is to compare e.g. the S&P Global 100 with the S&P Global 1200. I especially like the free backtest function of Silicon Cloud’s Portfolio Visualizer tool (Backtest Portfolio Asset Allocation (portfoliovisualizer.com)). You can start with one stock and arbitrarily add other stocks and discover how fast the average portfolio risk decreases with mostly limited changes in returns.

30 stocks are enough for me

I typically use 30 stocks for my direct equity portfolios without any minimum or maximum allocations to countries or industries. My own experience with such concentrated direct equity portfolios is very positive. My Global Equities ESG S portfolio which includes only my top 5 responsible stocks has a better return even assuming annual fees of 1,2% than a traditional global diversified ETF with hundreds of stocks. Also, my Global Equities ESG and Global Equities SDG portfolios with 30 “most-responsible” stocks each perform very similar after fees compared to a very diversified global ETF (see ESG ok, SDG gut: Performance 1. HJ 2022 – Responsible Investment Research Blog (prof-soehnholz.com) and www.soehnholzesg.com). And my mutual fund with 30 stocks currently has a YTD return of -0,5% and thus belongs to top 10% of all equity funds worldwide (FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T).

I published a shorter earlier version on LinkedIn on August 8th, 2022

ESG overall: Das Bild von Thomas Hartmann zeigt Blumen in Cellle

ESG overall (Researchblog #91)

ESG overall: >15x new research on fixed income ESG, greenium, insurer ESG investing, sin stocks, ESG ratings, impact investments, real estate ESG, equity lending, ESG derivatives, virtual fashion, bio revolution, behavioral ESG investing

Advert: Check my article 9 SFDR fund FutureVest Equity Sustainable Development Goals (-2,9% YTD). With my most responsible stock selection approach I focus on social SDGs and midcaps and use best-in-universe as well as separate E, S and G minimum ratings.

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