Genus Weekly In Focus – Addressing COVID-19 Concerns Week-27

Sue Talbot: [00:00:03] Hi, everybody, today is Friday, September 18th, and welcome to week twenty seven of the Genus InFocus videos. My name is Sue Talbot and I’m a partner and portfolio manager here at Genus. And with me today is Mike Thiessen. Mike is also a partner and he’s the director of Sustainable Investments. So, Mike, let’s start with the review of the the markets, it was another volatile week in the markets. Things were positive at the beginning of the week and started to change towards the end. So can you fill us in on the details on what happened?

Mike Thiessen: [00:00:35] Sure, yeah, so we ended up quite flat for the week, so both the S&P five hundred and the TSX were quite flat, but there was a lot of movement, like you’re saying, especially with big technology companies. So Facebook was down about five percent, Amazon down about five percent. Google and Apple were down about two and a half percent. So a lot of movement there, even in Canada, are big. Our big tech company, Shopify, was down about seven percent. So a lot of movement with with technology. And I think it’s a lot of people just taking money off the table. These tech companies have done so well over this whole pandemic. So so people are starting to get out of those or at least trim their positions there. But we’re seeing the value trade start to build up some more value type companies are doing well. And that’s a significant part of our models, is it is value factor. So that’s that’s good for our funds. And then we also saw a lot of small cap companies doing well. And I think that’s great for the overall economy. We want to see a lot of these smaller companies recover. Overall quite, quite flat on the week, but a lot of movement within.

Sue Talbot: [00:01:41] In terms of any activity in our portfolios this week, did we do anything?

Mike Thiessen: [00:01:47] So this week we did a few a few small changes. Usually we do the bigger changes at the beginning of the month when when we get new data and our models come up with new new scores that we then use to do our rebalances. But this week we did trim some technology, especially semiconductors, and moved that into more value based sectors like industrials. We also trim some mining companies. A lot of mining companies that we’ve held in the portfolios have done extremely well over this pandemic. And so they’re now larger positions within our portfolio. So we are wanting to trim down those those positions, especially as momentum has started to become more negative for some of those mining companies. So we just want to lower our exposure there.

Sue Talbot: [00:02:34] Ok, so next, I wanted to ask you about a Globe and Mail article that was published on Monday, and the headline said that fossil fuel demand has lately hit its peak. So in the article, BP, who is one of the largest oil companies in the world, is predicting fossil fuel consumption will shrink for the first time in modern history. It also goes on to say, however, that overall demand for energy will grow, but the supply will change. So can you explain what that means?

Mike Thiessen: [00:03:02] Sure. Yeah. So BP has had an interesting report that they put out. So they put out these reports about oil consumption and where it’s going to where the peak is predicted to be. Usually the peak, they predict is 20, 30 or 20, 40. But they say under certain scenarios, it could but could be right now because more people are working from home because of the pandemic. So there’s less people driving to work or other places. And electric vehicles have really have really become a big part of a lot of car companies. So they’re predicting that more people will be driving EVs and renewable energy is really rising at an exponential rate as the overall share of energy production. So in terms of supply, that would mean that supply would need to be coming down if if oil consumption is going down as well, or else you’re going to see a crash in oil prices similar to what we saw earlier this year. And then. So if the supply of overall energy is decreasing in terms of in terms of oil, it’s increasing in terms of renewable energy and probably other fossil fuels like natural gas, which will likely continue to increase, actually.

Sue Talbot: [00:04:15] Right. And you mentioned the Alberta oil sands. So Canada is a large producer and exporter of oil in the world. In fact, we’re the fourth largest with the majority coming from Alberta oil sands. So what will this mean for candidates? Bottom line?

Mike Thiessen: [00:04:30] Yes, I think it’ll be obviously negative in the short run for Canada, for Alberta, but I think Canada has done so well to adapt to this new kind of pandemic style economy. So I think that we’re just going to have to adapt. And also we have so many other materials in Canada that that are needed in the low carbon economy. So in the long run, we’ll be able to adapt. But I think in the short run, it will be quite a negative hit for the Canadian economy.

Sue Talbot: [00:05:00] Yeah, and this pandemic really has fast tracked the changing you know, we have to start changing things and it’s great that we’re positioned well for that. Yeah, so let’s have it here and talk about a new report that we plan to make available in our September 30th kind statements. And we’re going to be introducing a net impact report. And I believe we’re the first forum in Canada to provide this type of metric. So can you explain what this report measures and why we decided to make this report available to our clients?

Mike Thiessen: [00:05:34] Sure, yeah, so we’re we’re quite excited about this new metric, like you said, it’s it’s we’re the first ones in Canada to do this. So we’re basically looking at positive impact of the portfolio’s making and the negative impact that it’s making. And we’re combining those to make a net impact score. So what’s the total impact of your portfolio? Because we believe that all portfolios are making an impact. You might be making a positive impact or you might be making a negative impact. And you want to know what those impacts are in calculating the positive impact that a portfolio is making. We’re looking at the percentage of revenue within the portfolio that is coming from positive impact sources, and they have to be contributing to UN sustainable development goals. And then on the other side, with negative impact, we’re looking at what percentage of revenue within your portfolio is coming from negative sources. And these are things that are detracting from UN sustainable development goals and then combining those to get kind of an overall net score. So we’re going to be measuring all of our funds, but our fossil free fund score quite well in this sort of fossil free cash. Global Fund has a positive impact of 14, and that has no negative impact because we make sure that we don’t have that in the portfolio. So its net impact score is 14. And then we also have an impact fund. So our Fossil Free Impact Equity Fund has a net impact of fifty eight. So that’s first, that’s benchmark of three. So it really surpasses its overall benchmark and even our our non fossil free five is do quite well when it comes to the net impact as well. So it’s something that we’re excited about and excited to share.

Sue Talbot: [00:07:15] Right. So we look forward to having that report available to our clients. We’ll end it here. Thanks, Mike, for your insights. And thanks, everybody, for watching. And if you have any questions, please contact your portfolio manager. And have a great weekend, everybody, and we’ll see you back here next week. Thank you.