BlackRock stunned the world of active management at the end of the first quarter when it announced that it was reducing investment staff and moving strategies to the quantitative side of the business. Although the numbers were relatively small, 5 out of 53 stock pickers and $6B out of $201B (Bloomberg), investment managers wondered if this was the moment that sealed the battle between active and passive.
Now that we are through one of the most divisive elections, with the two most disliked candidates in our history, it may be intrusive to reflect on what effects these types of events have had in the past. Although not as devastating as a war or depression it is well to remember that while not pleasant, America has been able to confront and continue to prosper throughout our history.
As the Essex Global Environmental Opportunities Strategy (GEOS) completed seven years of track record on June 30, 2016, we were wrapping up a comprehensive West Coast marketing trip with prospects and clients. This road show came on the heels of some significant speaking engagements, where we were generally asked to address the case for climate solutions and clean technology investing. Most of the investors with whom we met understood the strong case-for clean tech investing, given the multiple secular trends afoot. However, the oft and warranted question we fielded, was "when will clean stocks improve?"
Even before the surprising vote on the Brexit at the end of June, the Federal Reserve was pulling back from their intentions to raise rates more than once this year as growth once again showed signs of bouncing around 2%. The inability of the US economy to accelerate past 2-2.5% growth continues to frustrate policy makers and citizens alike as this recovery continues to be one of the least heralded and least believed in our collective memory. In particular, the continued sense of malaise caused by stagnant wages and frustration over job growth has been one of the major factors leading to the rise of populism around the world. We are seeing calls from our presidential candidates in the US as well as political candidates in Europe for policies that they believe will lead to a return to manufacturing ranging from tax treatment, to tariffs, to a repudiation of globalization. The question, of course, is will any of these prescriptions cure the disease?
As we engage with prospects for Essex's Global Environmental Opportnuties Strategy (GEOS), we are frequently asked to define where GEOS fits in the ESG (Environmental, Social and Governance) arena, or amidst global sustainability strategies. We designed and manage GEOS to harness and profit from what we believe to be one of the greatest global mega-trends of our generation: the need to do much more with fewer resources.
Water is one of the nine environmental themes identified by the Essex Global Environmental Opportunities Strategy (GEOS) as an area where clean technologies that improve the efficient use of scarce resources can offer superior financial returns. Rising water demand coupled with supply and distribution risk has put tremendous stress on global water supplies, and technologies that alleviate water scarcity have enormous opportunities for growth.
As 2015 comes to a close, we find ourselves asking an existential question: can one achieve competitive returns while investing in clean energy technologies that have the potential to substantially change the world. We are prompted to consider this question as the Wilderhill Clean Energy Index was down a little more than -10% for the year 2015, the fifth time in the last six years that this Index has ended the year in negative territory. This, during a period that has been favorable to the overall stock market – the MSCI World Index is up more than 186% since it bottomed in March 2009 following the financial crisis. The good news is that, despite the significant headwinds buffeting the clean energy sector, Essex’s Global Environmental Opportunities Strategy (“GEOS”) has performed substantially better than the Wilderhill Clean Energy Index since the inception of our Strategy in mid-2009.
2015 was a challenging year for many investors. Although the broader US markets closed the year largely unchanged, the placidness suggested by the flat returns of the broad indices belies the volatility and stresses experienced throughout the year. As measured by the S&P 500 Index, the markets experienced a daily move of more than 1% up or down on 72 trading days (nearly 30% of the trading days). The Index peaked for the year during the third week of May and declined more than 12% from this closing high to its closing low on August 25th.
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