Fidelity Expands ESG Lineup - Adviser Investments

Fidelity Expands ESG Lineup

In This Issue:

Fidelity Expands ESG Lineup

Fidelity Investments launched five new actively managed environmental, social and governance (ESG) funds last week. The new funds include two equity mutual funds, one bond mutual fund and two equity ETFs, bringing Fidelity’s total ESG lineup to 11 mutual funds and ETFs. The new funds are available for purchase, commission-free, on Fidelity’s brokerage platform as of June 17.

The funds target a wide range of ESG goals, seeking to invest with companies that proactively address climate change, prioritize and advance women’s leadership and development, and/or have proven sustainability practices. Additionally, Fidelity’s bond fund looks for companies that provide environmental solutions or support efforts to reduce their environmental footprints.

The new ETFs have the same investment strategies as their like-named mutual funds. But there’s one wrinkle: The ESG ETFs are actively managed, so they don’t release a daily accounting of their holdings and the actual price you receive for shares may differ from their public net asset value (NAV). While Fidelity does publish a “Tracking Basket” for the fund to give purchasers a sense of its holdings, it is not the ETF’s actual portfolio.

While these new, actively managed ETFs offer less transparency than traditional ETFs, Fidelity’s approach is becoming more popular: Earlier this month, Columbia Threadneedle became the seventh fund firm to license Fidelity’s active equity ETF methodology, following Capital Group, Goldman Sachs Asset Management, Hartford Funds, Invesco, John Hancock and Putnam.

ESG Investing: Our Perspective

Fidelity’s decision to dive deeper into ESG investing may have you wondering what we think of the move. Fortunately, we addressed this issue very recently in our “Ask Us a Question” feature, which appears in our Weekly Update.

A reader asked: What is Adviser Investments’ perspective on ESG investing and how should we, as investors, be thinking about this opportunity?

Research Analyst Liz Laprade had this to say:

ESG investing has grown in popularity in recent years, but at Adviser Investments, it’s business as usual.

Put simply, the goal of ESG investing is to invest in companies that are cognizant of how their businesses affect the environment and are taking steps to protect it, treat their customers and employees right, and boost shareholder value in an ethical and responsible way.

These are factors that good stock pickers should always consider—regardless of whether their funds or portfolio objectives are labeled by platforms and product providers as “ESG.”

The tricky part of investing in self-described ESG funds is that there is no agreed-upon metric for scoring companies on ESG measures. Even companies with strong “ESG scores” based on one measure or another aren’t always synonymous with high quality. Often, companies score well in only one or two out of the three ESG pillars, yet their scores average out to a good overall ranking.

Take Tesla, for example. Some ESG raters score it highly on environmental factors. Others would contend that Tesla’s automotive batteries are the product of rapacious mining for raw minerals and should therefore have lower environmental scores. The company also arguably rates lower in corporate governance given founder Elon Musk’s sometimes outrageous behavior and flouting of regulations.

For us, and for the managers we invest in, ESG factors are an important part of whether a stock is a buy or sell. A few years ago, Barron’s ranked actively managed mutual funds by a particular set of ESG criteria. Several of our managers scored higher than many of the ESG-focused managers in the survey, yet “ESG” isn’t in the names of the funds they run.

Score or no score, we think it’s a positive that corporations are being pressed by investors to make their companies more environmentally and socially responsible. ESG factors, as well as any unethical or environmentally irresponsible events, have always been important considerations for us and for our managers when making investment choices.

Money Funds Get Some Relief, but Pressures Linger

Fed Chair Jay Powell’s remark last week that the central bank was “talking about talking about” raising rates in 2023 was enough to send markets dipping.

One item that got buried in all the talk about base federal funds rates? The central bank has already agreed to bump up rates on its overnight repurchase facility in order to provide some relief to money market funds.

The Fed’s low base rate—combined with a tsunami of pandemic stimulus—has driven down yields on short-term debt, with many funds already cutting fees to prevent going negative.

Despite the low rates, assets in government money market funds (where investments are limited to Treasurys) jumped above $4 trillion for the first time in May. Many funds haven’t been able to find a better place to put their assets than the Fed’s overnight reverse repurchase program, which has paid 0% interest. Use of the facility climbed to a record $584 billion earlier this month.

At its meeting last week, the Fed agreed to increase the interest rate on the facility to 5 basis points (0.05%), helping money markets stay in the black—for now. But with no plans to raise base rates anytime soon, and with the Treasury likely to issue more short-term debt in coming months, money markets yields may stay near-zero for some time. That could force further consolidation and fund closures. In April 2020, both Fidelity and Vanguard closed their government money market funds to new investors, though both firms have since reopened them.

Podcast: A Tactical Approach to Asset Allocation

With interest rates pinned at low levels, even some cautious investors have delved into riskier assets in search of income. But taking on more risk in your portfolio can leave your nest egg exposed if the markets shift. In this episode of The Adviser You Can Talk To Podcast, Quantitative Investments Manager Josh Jurbala and Portfolio Manager Charlie Toole describe how a tactical, multi-asset approach can help mitigate some of these risks. They cover:

  • Why investors may need to look beyond stocks and bonds in today’s markets
  • The role tactical asset allocation can play in helping to respond to different market environments
  • Why preparation outperforms prediction

With inflation fears sparking market volatility, finding a safe harbor isn’t easy. Tactical strategies can help you navigate choppy markets. Click here to learn about tactical asset allocation, or listen to part I and part II of our series on tactical investing.

Click here to listen now!

Adviser Investments’ Today’s Market Takeaways

There’s no shortage of hyperbolic headlines and provocative punditry in the financial media. But you won’t find such hysterics here. In Today’s Market Takeaways, members of our investment team provide timely videos that clearly and concisely explain what we’re seeing in the markets.

Research Analyst Liz Laprade talked about the market’s reaction to last week’s Fed meeting minutes, while Vice President Steve Johnson asserted that “bonds don’t lie” when it comes to inflation.

We hope you find these episodes engaging and accessible, and please let us know if there are any topics you’d like to hear us address by sending an email to info@adviserinvestments.com!

About Adviser Investments

Adviser Investments operates as an independent, professional wealth management firm with expertise in Fidelity and Vanguard funds, actively managed mutual funds, ETFs, fixed-income investing, tactical strategies and financial planning. Our investment professionals focus on helping individual investors, trusts, foundations and institutions meet their investment goals. Our minimum account size is $350,000. For the eighth consecutive year, Adviser Investments was named to Barron’s list of “America’s Best Independent Advisors” and its list of the top advisory firms in Massachusetts in 2020. We have also been recognized on the Financial Times 300 Top Registered Investment Advisers list in 2014, 2015, 2016, 2018 and 2019.

For more information, please visit www.adviserinvestments.com or call 800-492-6868.


Disclaimer: This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Our statements and opinions are subject to change at any time, without notice and should be considered only as part of a diversified portfolio. Mutual funds and exchange-traded funds mentioned herein are not necessarily held in client portfolios. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

You may request a free copy of the firm’s Form ADV Part 2A, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

The Barron’s America’s Best Independent Advisers rankings consider factors such as assets under management, revenue produced for the firm, and quality of practice as determined by Barron’s editors. According to Barron’s, “around 4,000” advisory firms were considered for this recognition in 2020; with about 1,200 firms receiving recognition. The award sponsor has not disclosed how many firms were surveyed or considered for this recognition, nor the percentage of total participants that ultimately received recognition. For more information and a complete list of recipients visit https://www.barrons.com/report/top-financial-advisors/1000/2020. Years Received: 2020, 2019, 2018, 2017, 2016, 2015 & 2014.

The Barron’s Top Advisor Rankings by State (Massachusetts) (also referred to as Barron’s Top 1,200 Financial Advisers) considers factors such as assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. According to Barron’s, “around 4,000” advisory firms were considered for this award in 2020, with about 1,200 firms receiving recognition. For more information and a complete list of recipients visit https://www.barrons.com/report/top-financial-advisors/1000/2020?mod=article_inline. Years Received: 2020, 2019, 2018, 2017, 2016, 2015 & 2014.

The Financial Times 300 Top Registered Investment Advisers is an independent listing produced annually by the Financial Times and Ignites Research. According to the Financial Times, in 2019, approximately 2000 firms were invited to be considered for its list; 740 responded, with 300 being named to this list. The listing reflects each practice’s performance in six primary areas: Assets under management (70-75% of a firm’s score), asset growth (15% of a firm’s score), years in existence, compliance record, credentials and online accessibility. For more information and a complete list of recipients visit https://www.ft.com/content/44d2b2b2-6cef-11e9-9ff9-8c855179f1c4Years Received: 2019, 2018, 2016, 2015 & 2014.

Awards referenced above do not consider client experience and are not indicative of such. Nor are awards indicative of future performance. Unless otherwise noted, Adviser Investments does not pay a fee to participate in any of these awards. Additionally, awards typically only consider and recognize participants that choose to participate; and are often based on information supplied by the participants—such information should not be assumed to be verified by the sponsor of the award.

The Adviser You Can Talk To Podcast is a registered trademark of Adviser Investments, LLC.

For a summary of Adviser Investments’ advisory services and fiduciary responsibilities to our clients, please review our Form CRS here.

© 2021 Adviser Investments, LLC. All Rights Reserved.

Adviser Investments' logo is a registered trademark of Adviser Investments, LLC.