GEOS April 2022 Update
It goes without saying that the global markets have been volatile for the start of 2022, reflecting broad investor angst, from continued pandemic complexities, to concerns regarding a protracted inflationary cycle. While we are amidst an inflationary cycle, we are taken by the commodity price spikes driven by the economic cycle as well as shocks such as the prolonged pandemic and the war in the Ukraine. The war has exhibited the linkages between geopolitical strife and utterly important fossil fuel supplies which can be abated though increased movement to new energy technologies. Many of our GEOS holdings are also well positioned to assist with lessening the inflationary effects on commerce while improving productivity.
We have observed some backlash lately against environmental, social and governance (ESG) strategies, with “gotcha” criticisms, questioning, for example Russian equity or fossil fuel exposures. We believe general ESG funds don’t do enough to solve real problems – the debates are moot and detract from action. We simply believe the Essex GEOS investment philosophy resonates at this time, given our focus on investing solely in companies that are providing clear solutions to global issues across the board, from climate change to air quality. While many funds look inward, to ensure and measure ESG exposures and progress, we invest outward, in solutions to assist and solve urgent problems. There is a growing call to action to solve these problems now, and we trust more investors will recognize thematic, solutions-oriented investing. One important element of our solutions orientation is sharing tangible examples of the impact of GEOS portfolio companies, as well as highlighting alignment with the U.N. Sustainable Development Goals (SDGs) or real action toward net zero commitments. We also believe no company is perfect and we continue to engage with our companies more formally on ESG concerns and related progress.
We are amidst a transition of our global economy which will impact trade and business for the foreseeable future. Inflation will affect input costs for companies and consumer behavior and will be exacerbated by higher and extended interest rates. Global trade will continue to be disrupted given the greatly increased geopolitical conflicts driven by disputes with China, and the effects of the Russian sanctions. The war in the Ukraine has caused severe increases in price beyond just oil and natural gas. The Ukraine has historically supplied over 20% of global grain supply, which is now off the table. To make matters worse, food insecurity is increasing with 45 million people on the brink of famine now given drought and geopolitical strife in South America, Africa, and the Middle East according to the U.N. And, as the U.N. Intergovernmental on Climate Change (IPCC) released their latest report exclaiming in the strongest language to date that climate change severely threatens global food security, with global yields of agricultural commodities forecast to decrease up to 25% with each additional degree of global warming. Our world is running out of time to limit the worst impacts of climate change, and we all have “a brief and rapidly closing window of opportunity” to act. Dire warnings and a continued alarming news cycle. What to do? To highlight a favorite quote of ours from Nelson Rockefeller, “Wherever we look upon this earth, the opportunities take shape within the problems.” GEOS consists of stocks representing companies positioned for these problems, from re-onshoring domestic manufacturing to flexible factories and addressing food shortage solutions and agricultural solutions. As we watch and reflect on the alarming news flow of late, we continue as always to leverage the GEOS investment philosophy, investing in companies solving global challenges to provide attractive financial and social impact returns.
This commentary is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. The opinions and analyses expressed in this commentary are based on Essex Investment Management LLC’s (“Essex”) research and professional experience and are expressed as of the date of its release. Certain information expressed represents an assessment at a specific point in time and is not intended to be a forecast or guarantee of future results, nor is intended to speak to any future periods. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties.
This does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product, nor does it constitute a recommendation to invest in any particular security. An investment in securities is speculative and involves a high degree of risk and could result in the loss of all or a substantial portion of the amount invested. There can be no assurance that the strategy described herein will meet its objectives generally or avoid losses. Essex makes no warranty or representation, expressed or implied; nor does Essex accept any liability, with respect to the information and data set forth herein, and Essex specifically disclaims any duty to update any of the information and data contained in the commentary. This information and data does not constitute legal, tax, account, investment or other professional advice. Essex being registered by the SEC does not imply a certain level of skill or training.
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