We’re at the half-way mark for first quarter earnings. With 261 companies reporting in the S&P 500, earnings are up 0.7% on a blended rate, according to Refinitiv.
«We have avoided an earnings recession — it is unlikely we will see two quarters with earnings down,» David Aurelio, who tracks earnings for Refinitiv, told me.
Analysts began cutting estimates in late December on fears of a global slowdown led by China. They continued cutting in January and into the end of March. By the early part of April, earnings were expected to be down 2.5% for the first quarter, a big reversal from early December, when the same first quarter earnings were expected to be up nearly 7%.
But then a funny thing happened: Early reporters like Adobe and Nike reported much better than expected earnings.
What changed? Nick Raich from The Earnings Scout said the global growth narrative changed, due mostly to central banks. «First, the Fed backed off,» Raich told me. «Then everyone realized that China was stabilizing, Europe was not as bad as feared, the U.S. economy was still strong, and the analysts had cut their numbers too much.»
«The big story for earnings this year is, it’s a lot better than feared,» he added.
Because analysts cut earnings estimates too drastically, companies are beating estimates by far greater amounts than normal. Average earnings surprises are 6.9% above consensus, twice the normal percentage beat, according to Refinitiv. «You have to go back to 2009 to find these kinds of beat rates,» Raich said.
Analysts have modestly trimmed second-quarter earnings, now expected to be up 1.7%, and Q3 up 2.0%. Fourth quarter estimates of 8.5% growth have been left largely unchanged.
As of now, 2019 will likely see modest mid-single digit gains in earnings, well below 2018 torrid earnings growth of above 20 percent, but still respectable.
The big problem for the markets now is valuation. Stocks are pricey, trading at around 17.1 times forward earnings, well above the historic average of 15 to 16 times forward earnings. Even if you take 2020 earnings estimates, the S&P 500 is trading at a roughly 15.5 multiple, near the historic average.
Bottom line: A lot of things are going to have to go right in the global economy to justify these prices. There is very little room for error.
Talking about money is one of the most important skills to being a fiscally responsible and literate person. However, 44% of Americans surveyed would rather discuss death, religion or politics than talk about personal finance with a loved one.
Why? Two major reasons are embarrassment and fear of conflict, even though the consequences can be grave: 50% of first marriages end in divorce, and financial conflict is often a key contributor. Additionally, in our society it is considered rude to discuss money and wealth.
This longstanding taboo also contributes to the gender wage gap, as women are more harshly judged when they speak up and negotiate their salaries. And it is the missing link in financial literacy training.
The failure of these programs to solve the crisis proves that technical training is not enough. It really requires busting through the money talk taboo and empowering parents, teachers and the next generation to openly and honestly share their thoughts and feelings about spending, saving and investing money.
Financial advisors are uniquely positioned to change the conversation around literacy and address the elephant in the room: the money talk taboo. For advisors, teaching financial communication skills and helping clients understand how their emotions influence their money decisions is just as important as showing them how to calculate compound interest.
By breaking through money silence, advisors grant clients permission to ask questions and seek answers without shame or fear of judgment. As the saying goes, You are as sick as your secrets.
Weekly advice on managing your money
It is time for advisors to bring this dialogue into the light and create a learning environment that empowers individuals, couples and families to learn, grow and pass on financial assets and knowledge to future generations. It is time for more than 40% of families to successfully pass on wealth, and 10% of advisors to keep the family’s business growing at times of intergenerational transfers.
Breaking money silence not only improves clients’ financial literacy, it fuels business growth. A recent survey conducted by KBK Wealth Connection in partnership with Abudi Consulting found that talking with clients about the human side of finance improved the advisor-client relationship.
The human side of finance is defined as the non-technical components of working with clients, including identifying, validating and speaking to the emotional and behavioral aspects of financial planning and investment management. In the survey, 190 advisors were interviewed, with 77% reporting an increase in client loyalty, 61% a rise in referrals and 57% an increase in assets under management.
By giving others permission to talk about finances, you will move the needle one step forward toward ending the financial literacy crisis for good.
Kathleen Burns Kingsbury
founder of KBK Wealth Connection
Advisors and financial services firms can solve the financial literacy problem by opening up the dialogue about the human side of finance. Here are three ways to accomplish this.
1. Break money silence as part of the discovery process. Add a few questions to assess a client’s money-talk mindset and her understanding of the impact of emotions on financial decision-making. Including psychological and behavioral questions into the onboarding process communicates to clients that these topic areas are safe to discuss.
Questions may include:
What did you learn from your parents/grandparents about financial communication? How might that impact your comfort level discussing finances with an advisor? A partner? A child? A parent?
On a scale of 1 (lowest) to 5 (highest), how much do you think your emotions about finances inform your decision-making? What would you like your rating to be and why?
What is one area that you are knowledgeable about when it comes to finances and investing, and what is one area in which you need more education?
2. Listen for emotional data. Advisors are well trained in how to collect and analyze large amounts of financial data. Use these same skills to elicit emotional data from clients, too. Emotional data are just as valid as numerical information and offer clues into how to effectively advise individuals or couples. Start by noticing a person’s tone of voice, body language or shift in affect during a meeting. Once trust is established, ask clients for more information about their human reactions to money, investing and advisor recommendations.
3. Be a role model. Role-modeling healthy financial communication is vital to improving literacy rates in this country. Make an effort to break money silence with clients, colleagues and your loved ones.
Notice money messages in movies and songs and on TV. Volunteer at your local school and empower young people to learn more about the emotional side of money. By giving others permission to talk about finances, financial advisors can move the needle one step forward toward ending the financial literacy crisis for good.
— By Kathleen Burns Kingsbury, founder of KBK Wealth Connection
By 2016, certified financial planner Kirk Francis had helped numerous small business owners implement strategies for exiting work. Yet he didn’t have a succession plan for his own firm.
«I sat there going, ‘Hmmm … the cobbler’s son has no shoes,'» said Francis, CEO and chief compliance officer at Financial Life Advisors in San Antonio.
Soon after, by buying another practice and taking on a partner, Francis made a plan that ensures his business will continue and his clients will be taken care of when he is no longer there to do so, whether it’s due to some unfortunate event or he’s simply retired as planned.
Ariel Skelley | DigitalVision | Getty Images
However, Francis is in the minority among his peers, according to various studies. While advisors are more likely to explore their options as they near retirement, 73% overall lack a formal succession plan, according to a 2018 study by the Financial Planning Association and Janus Henderson Investors.
Yet many experts think it’s a crucial aspect of running an advisory firm.
«I think our biggest concern is that when a client asks you what would happen if you get hit by a truck or something else bad happens, the response usually isn’t an acceptable one,» said Anand Sekhar, vice president of practice management and consulting at Fidelity Investments.
«Many investors do care, and you should have a good response to that question,» Sekhar said.
How prepared do you feel to sell/transition your business when the time comes to do so?
Not very prepared
There is no federal legal requirement that advisors have a succession plan in place. The Securities and Exchange Commission proposed a rule in 2016 to mandate «business continuity and transition plans» for the 12,000 or so investment advisors it oversees (of the estimated 300,000 financial advisors out there of all regulatory stripes). However, the Obama-era proposal has gone nowhere and there’s little expectation for change any time soon.
At the state level, though, advisors could face a requirement. At least 12 states mandate a plan, according to the North American Securities Administrators Association. The group created a model rule several years ago, which states could adopt, to require registered advisors to have business continuity and succession plans in place that minimize «service disruptions and client harm that could result from a sudden significant business disruption.»
Information on exactly how often clients are left in the lurch from the sudden departure or death of their financial advisor is hard to come by. Attorney Brian Hamburger, founder of industry consultant MarketCounsel in Englewood, New Jersey, said he gets several calls a year because of an advisor unexpectedly dying. And when it happens, chaos ensues.
«Without a business continuity or succession plan, it’s a highly perishable asset,» Hamburger said. «Only days after the unavailability or demise of the founder, these firms have no trading authority, no banking authority or authority to run payroll. It’s a chaotic situation.»
He said he often ends up on the phone to the widow of the advisor, stressing the importance of acting quickly when all the person wants to do is take time to mourn their loss.
«It’s awful,» Hamburger said.
Most advisors without a succession plan recognize the potential perils of not having one: Fifty-four percent see a significant risk and 41% see some risk, the FPA study shows. Also, 97% of them say they will create a plan at some point.
Across the board, the most-often cited challenge involves finding the right partner or successor.
«When we dig deeper, though, we find that the reason is rooted in classic human behavior — ‘I’ve got time’ or ‘I can do this later,'» said Michael Futterman, head of Knowledge Labs professional development at Janus Henderson.
From a fiduciary aspect, it’s important to have that nailed down. If I got hit by the proverbial bus, where does that leave my clients? And where does that leave my staff? Do they still have jobs?
founder of VLP Financial Advisors
CFP Bruce Vaughn, 62, the founder of VLP Financial Advisors in Vienna, Virginia, now has three partners as part of his firm’s succession plan. Two of them began buying shares 10 years ago.
«A plan is important on a lot of levels,» said Vaughn, who has no retirement date planned yet. «From a fiduciary aspect, it’s important to have that nailed down.
«If I got hit by the proverbial bus, where does that leave my clients?» he added. «And where does that leave my staff? Do they still have jobs?»
He also said his plan matters for retention reasons.
«I want my most valuable staff to have the opportunity to do well here and get rewarded for the work we’re all doing,» Vaughn said. «If I don’t provide that opportunity, they’ll go somewhere else.»
CFP Daniel Lash, one of Vaughn’s partners who began buying shares from him 10 years ago, said clients have started asking more often what Vaughn’s retirement plans are.
«We communicate that all of his clients will be taken care of,» Lash said.
Not all financial advisors who do succession planning go the internal succession route, which requires both employees who have the skills to lead the firm and the financial wherewithal to buy in. It also often involves a discounted price compared with what an external sale might bring.
For smaller operations, the lack of a succession plan is more acute: Just 13% of advisors at firms managing less than $50 million have a formal plan, compared with 60% of those at firms with $500 million or more in managed assets.
At a minimum, advisors should have a contingency plan to cover client services if they are unable to, along with a buy-sell agreement, Fidelity’s Sekhar said.
Weekly advice on managing your money
With a basic buy-sell agreement, if one of the parties dies, the other buys those shares. Life insurance policies often ensure funds are available to make the purchase, and any valuation should be revisited from time to time.
Financial Life Advisors’ Francis said a financial planner who operates solo and is about 40 years old is considering using his firm as part of a succession plan.
«But too many egos out there are saying, ‘I can do this on my own,’ and that doesn’t let them see they might not be around tomorrow because of a car wreck,» Francis said.
He also notes that his own plan involved some compromises. For example, he gave up 11% in commission revenue because the merged firm is fee-only. Making that shift, he said, was scary — although the merged firm ended up with 20% growth in 2017 and 2018.
«It’s a lot more fun,» Frances said of work now that he has a partner and a plan. «Having someone who has as much skin in the game as you do, and cares as much as you do — it just feels better.»
A child stands next to the ‘Fearless Girl’ after a ceremony to unveil the statue’s new location across from the New York Stock Exchange on Dec. 10, 2018 in New York City.
Drew Angerer | Getty Images News | Getty Images
If you want to see a better gender balance in the workforce, you may want to consider putting your money where your mouth is.
Enter gender and diversity funds, which screen for certain characteristics — such as women in leadership — and let you back companies that share those priorities.
These are funds that seek to make a measurable impact, alongside financial return, by investing in companies with a record of measuring and improving workplace diversity and equal pay for equal work.
Among U.S. asset managers, there are 15 funds — exchange-traded funds and mutuals — that fall into the gender and diversity sustainable investing category, according to investment research company Morningstar.
That includes 10 funds provided by Calvert Research and Management. Those funds consider gender and diversity investment criteria alongside other environment, social and governance priorities.
One fund — SerenityShares’ Impact ETF — closed in March, two years after it launched. It had less than $5 million in assets under management.
«We never hit the critical mass for being able to cover the cost of offering the fund,» said Scott Sacknoff, CEO of SerenityShares. «Most advisors wanted to be the next dollar in, not the first dollar.»
But other fund managers are still betting that, with the right company selection, their funds can outperform and appeal to investors.
«There’s just volumes of data out there that shows that companies that invest more in women do better financially and economically,» said Julie Gorte, senior vice president for sustainable investing at Impax Asset Management and Pax World Funds. «You don’t have to give up anything for equality.»
Pax’s women-focused fund became an index-based mutual fund in 2015. Prior to that, it was an actively managed fund.
Today, it has about $318 million in assets.
The fund was started in the 1990s, and in the mid-2000s came under Pax and CEO Joe Keefe, who has a «personal vision and commitment» to gender equality, according to Gorte. Sallie Krawcheck, CEO of Ellevest, partnered with Pax in 2014 to provide this latest version of the fund.
The strategy works by building an index using five criteria when evaluating companies: board diversity, diversity of upper management, CEO gender, CFO gender, and endorsement and implementation of the Women’s Empowerment Principles of the United Nations.
The company would love to include other parameters — such as gender pay ratio or the gender makeup of the workforce, Gorte said. Much of that data, however, is not publicly available, she said.
«There will come a day, I’m sure, when companies all report these things, either because they have to or because it’s so material that they can’t not,» Gorte said. «But this is not that day.»
Weekly advice on managing your money
Pax’s fund comes up with an index of about 400 companies after ranking them in the MSCI World Index based on gender criteria. The index is updated annually, which means that companies may be dropped if their performance lags.
The fund’s current top holdings include Microsoft, Ulta Beauty, Intuit, Estee Lauder and American Water Works.
Another, smaller fund that began trading in August is the Impact Shares YWCA Women’s Empowerment ETF.
The fund is a collaboration between Impact Shares, a provider of socially conscious ETFs, and the nonprofit YWCA, which advocates for women’s and minorities’ rights.
Like Pax’s fund, it is also based on an index, which is provided by Morningstar. The top 200 companies are selected based on equality scores they receive from Equileap, which promotes gender equality in the workplace.
The scores are based on criteria including gender balance in a company’s leadership and workforce, equal compensation, work-life balance, policies around equality, and transparency and accountability. Companies may be screened out if they have a legal history of discrimination or sexual harassment cases, among other reasons.
Impact Shares’ fund has about $4.1 million in assets under management. It includes more than 200 U.S. large and mid-cap companies.
Some of its largest holdings include Amazon, Apple, Intel, J.P. Morgan Chase and Microsoft.
Morningstar agreed to collaborate with Impact Shares because of its belief in the benefits of diversity and inclusion, said Dan Lefkovitz, index strategist at Morningstar.
«The companies that score well for gender criteria also tend to be competitively positioned well,» Lefkovitz said. «They tend to be financially healthy, and they tend to be less volatile than their peers.»
SEC chief Jay Clayton, who is in charge of protecting American investors, has strong thoughts on what Americans need to do to save for an adequate retirement.
Clayton will appear on CNBC’s «The Exchange » with Kelly Evans and me on Friday at 1 p.m. ET to talk about the SEC’s job to protect American investors, maintain fair, orderly and efficient markets, and what he is doing to help companies going public, particularly in the now red-hot IPO market.
His first commandment is to get your financial house in order. Understand «what you have, what you owe, and what you spend,» Clayton said. «If you have high interest rate credit, the best investment is getting rid of that.»
Once that happens, it’s time to start investing. He keeps it simple: compounding, diversification and taking the free money.
Clayton defines compounding as «making money tomorrow on money you make investing today.» Money grows exponentially, faster than in a straight line: «Starting investing for retirement 30 years before your retirement date is four times as good as investing 15 years before your retirement date.»
Don’t put all your eggs in one basket. «By diversifying, you reduce risk, and keep the same return, in fact in some cases you increase returns,» he said.
Take the free money
Finally, take the free money. «This is magic. … If your employer 401(k) or other retirement plan offers matching, take advantage of it. I’ve seen a lot of investments. I know of no investment that is better than free money,» Clayton said.
The SEC also maintains an active website, Investor.gov, that serves as a primer on how the stock market works, the many types of investments (stocks, bonds, ETFs, annuities, etc.), how to create a financial plan, and how to check the background of an investment professional.
And, in a red-hot IPO environment, the SEC continues to maintain the Edgar website that has become the main tool for researching companies before they go public.
For another perspective on how to save for retirement, check out CNBC’s Financial wellness and education initiative, Invest in You: Ready. Set. Grow., which is part of our partnership with Acorns.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.
Traders and financial professionals work ahead of the closing bell on the floor of the New York Stock Exchange.
Johannes Eisele | AFP | Getty Images
The earnings recession is not happening. Despite disappointments from 3M, earnings for the S&P 500 are now expected to be flat for the first quarter after dire predictions in December.
Strong reports from Facebook and Microsoft and CNBC parent Comcast were the key to raising S&P 500 earnings estimates from down 2.5% two weeks ago to flat today.
S&P 500: Q1 earnings estimates:
Today: 0.0% April 24: down 1.1% April 22: down 1.7% April 11: down 2.5% Source: Refinitiv
Not out of the woods: Stocks have been rallying on the belief that the economies in China and to a lesser extent Europe have been «bottoming,» but comments in the last 24 hours are reminding investors that this is not settled.
South Korea’s surprise announcement that its GDP was down 0.3%, well below expectations of a gain of 0.3%, was one such warning sign. South Korea is very dependent on China for its exports.
MMM, which gets 20% of its revenue in Asia, pointed to slower growth in key markets, including China.
Semiconductor companies are particularly reliant on China for growth. The iShares Semiconductor ETF (SMH), a basket of semiconductor ETFs, is up 35% this year, largely on a belief that China has bottomed. Taiwan Semiconductor seemed to support that: A week ago, its CEO said, «We believe we may have passed the bottom of cycle of our business.»
However on Wednesday, Texas Instruments contradicted that assertion, saying the weakness in chip sales may continue, and Lam Research, one of the largest semiconductor manufacturing equipment companies, said the «spending correction» in memory chips will extend through this calendar year.
«The weak South Korea GDP was driven by weak semiconductor sales, largely to China,» said Brendan Ahern, CIO of Kraneshares, which has a family of China ETFs. «There are plenty of ‘green shoots’ in China,» he said, pointing to improvements in the Chinese Purchasing Managers Index, GDP and industrial production.
But Ahern notes that the huge 25% rally in Shanghai this year, among the best of all global markets, leaves China stocks vulnerable: «We are entering earnings season for China names. We need to see all that stimulus trickle down.»
And, most importantly, he notes that the China data needs to continue to improve: «The fundamentals need to catch up with the market.»
The markets are at new highs, so why does it feel like August?
The large beats on earnings from companies as diverse as Lockheed Martin, United Technologies, Pulte and Whirlpool are propelling the S&P 500 to a new high. In addition to earnings well above expectations, we see China bottoming, Europe at least showing some signs of stability, and the Fed remains accomodative.
Doesn’t get much better than that. So what’s next?
We have earnings reports from Banks (fair) and Industrials (better than expected) and a smattering of consumer names like Kimberly Clark and Procter & Gamble (also better than expected). To keep the momentum going, we need to hear from Technology, Energy, and especially Health Care, which has suddenly become the problem child for the markets.
Good news after Tuesday’s close: Texas Instruments, one of the world’s largest semiconductor companies, reported earnings above expectations and provided guidance for the second quarter that was roughly inline with expectations.
This is all good news, but if you think Wall Street is celebrating, try calling around on a trading desk: you won’t hear any champagne corks popping.
«It’s not just today, it’s been dead for weeks,» one sell-side trader told me. «It’s the opposite of euphoria.»
This is an age-old Wall Street complaint: stock traders do not view a new high as really valid unless there is some serious action — some serious volume, some serious volatility, some kind of, well, serious hoopla.
And that is what is missing from the rally.
1) With the S&P 500 sitting an historic high, there are only 13 stocks in the S&P 500 at new highs. The market is being pushed up by a small group of super-performers—so traders believe the rally needs to broaden out.
2) No one is scrambling to buy stocks: volume has been abysmal since the end of March.
3) No one is panicking either: the CBOE Volatility Index (VIX) is sitting near the lowest levels of the year. No one seems particularly worried that the market may drop suddenly.
The lack of euphoria or its opposite — the lack of worry — is one reason many traders are enthusiastic about the near-term future. It means many are still sitting on the sidelines, and they may now be dragged into the markets after seeing the new high headlines.
Traders and financial professionals work on the floor of the New York Stock Exchange.
Drew Angerer | Getty Images
The markets are at new highs, but it doesn’t feel that way.
Large earnings beats from companies as diverse at Lockheed Martin, United Technologies, PulteGroup and Whirlpool are propelling the S&P 500 to a new high. In addition to earnings well above expectations, we see China bottoming, Europe showing at least some signs of stability and an accommodating Fed.
Doesn’t get much better than that! So what’s next?
We have earnings reports from banks (fair) and industrials (better than expected) and a smattering of consumer names like Kimberly Clark and Procter & Gamble (also better than expected). To keep the momentum going, we need to hear from technology, energy and especially health care, which has suddenly become the problem child for the markets.
Good news after the close: Texas Instruments, one of the world’s largest semiconductor companies, reported earnings above expectations and provided second-quarter guidance that was roughly in-line with expectations.
This is all good news, but if you think Wall Street is celebrating, try calling around on a trading desk: You won’t hear any champagne corks popping.
«It’s not just today, it’s been dead for weeks,» one sell-side trader told me. «It’s the opposite of euphoria.»
This is an age-old Wall Street complaint: Stock traders do not view a new high as truly valid unless there is some serious action — some serious volume, some serious volatility, some kind of, well, serious hoopla.
And that is what is missing from the rally.
The S&P may be sitting at an historic high, but there are only 13 stocks in the index at new highs. The market is being pushed up by a small group of super-performers. So, traders believe the rally needs to broaden out.
No one is scrambling to buy stocks. Volume has been abysmal since the end of March.
No one is panicking either: The CBOE Volatility Index is sitting near the lowest levels of the year. No one seems particularly worried that the market may drop suddenly.
The lack of euphoria or its opposite — the lack of worry — is one reason many traders are enthusiastic about the near-term. It means many are still sitting on the sidelines and they may now be dragged into the markets after seeing the new high headlines.
President Trump speaks to the press before heading to Alabama to survey tornado damage in early March.
MANDEL NGAN | AFP | Getty Images
Donald Trump’s surprising ascent to president of the United States has brought many unexpected effects to the financial markets. Ironically, one has been a rapid increase in interest and adoption of impact investing and other types of values-based investing.
Impact investing, or values-based investing, is a type of investing that helps people and/or organizations align their investments with their personal values. There are many varieties of this type of investing, and it goes by many names, including socially responsible investing and green investing.
There has been a rise in assets in sustainable, responsible and impact investment strategies, to $12 trillion at the beginning of 2018, up from $8.72 trillion at the beginning of 2016, according to a US/SIF Foundation report on investing trends.
So while I would definitely wager that most SRI professionals were disappointed that Trump won, the silver lining has been that it’s inspired many investors to align their money with their values. Ironically, the president has been good for the environment.
Various industry studies show that most individual investors are interested in sustainable investing. A Morgan Stanley survey found that 75% of individual investors (and 86% of millennials) are interested in sustainable investing, with 80% interested in investments that are customized to meet their values. Additionally, a Fidelity study shows 37% of millennials currently own sustainable investing strategies and another 40% are interested in adding them to their investment strategy.
This increasing demand for impact- and values-based investing certainly has been aided along by socially progressive investors who were spurred by the Trump election to vote with their wallets, according to some financial experts. Many Americans were surprised by Trump’s election, and some found themselves at an inflection point, suddenly wanting to express their values publicly through marches, privately through conversations (and arguments) with loved ones, and through how they spent and invested their money.
To that point, certified financial planner Cathy Curtis, owner of Curtis Financial Planning, said that she saw this directly in her own practice.
«After Trump won, I had a meeting with one of my clients, a thoughtful and politically informed person; she was in shock at Trump’s win,» Curtis said. «During our meeting, my client told me she couldn’t stand the thought of her money being invested in companies whose CEOs were Trump supporters.»
Weekly advice on managing your money
Curtis explained that she didn’t have a way to screen for companies with Trump-supporting CEOs.
«So I suggested that, over time, due to tax implications, we move [this client] into exchange-traded funds and mutual funds that screen for ESG [environmental, social and governance] criteria so that her investments would be more closely aligned with her values,» Curtis explained.
Joey Fishman, an investment advisor representative at Ritholtz Wealth Management, who is a subject matter expert for sustainability themed portfolios, saw a similar trend.
«We received a ton of inquiries after Trump was elected,» he said. «Demand came from two different types of investors. The first were well-educated millennials who wanted to invest their values and were willing to put a ‘stake in the ground.'»
That group aligns well with an evidence based process, Fishman explained.
Clients … wanted to engage in more active investments than ever, given the likelihood that any government efforts on social and environmental policy would likely be fruitless over the following four years.
founder of Impact Investors
«The second type of prospects were looking for investments that reflected their specific, idiosyncratic values,» he said. «Unfortunately, these folks weren’t a fit, but it was helpful to hear their experiences and learn more about what helped shape their values.»
At Impact Investors, an advisory firm focused exclusively on sustainable and impact investing strategies, advisors reported an increased interest in values aligned investing from existing clients after Trump was elected president.
«I recall conversations just after the election with clients who wanted to engage in more active investments than ever, given the likelihood that any government efforts on social and environmental policy would likely be fruitless over the following four years,» said Shane Yonston, a CFP and founder of Impact Investors.
«Trump is a conversation in every client meeting,» added Catherine Woodman, a CFP and principal advisor at Impact Investors. «Clients want to use every avenue they can to push back on the presidential administration.»
The advisors at Impact said they had clients reach out within weeks of the election, asking that the firm screen out any companies that Trump profits from. Additionally, they added that some clients recently requested not to own any company involved in building the border wall.
Extinction Rebellion activist in London, England in April. In addition to protest, many people want to vote on climate with their investments.
NurPhoto | NurPhoto | Getty Images
These type of advisor/client conversations just after Trump’s victory were the beginning of what the SRI and impact investing community would see as the «Trump effect» — an increase in clients wanting to align their money with their values.
To that point, the hashtag #GrabYourWallet is a social media campaign for economic boycotts against companies that have any connections to Trump.
Additionally, reflecting investor interest in climate change, gender equality and immigration issues, OpenInvest, an impact investing robo-advisor, created an investable portfolio screen called Stand Up to Donald Trump. It allows investors the opportunity to avoid companies that financially support Trump.
The socially responsible investing field is a mature field with many decades of history, but until recently has remained relatively small and stable in the U.S. However, the last two years have brought a tremendous rise in demand and a proliferation of new «green,» «ESG» and «sustainable» investment products — thanks, ironically, to the election of Donald Trump.
The research also debunked another common misconception: That women are more interested than men in putting their money in investments that also do good.
Women did show a slightly stronger preference for sustainable investments, the research found. But the difference between the weighted averages of the scores assigned to the genders was small.
«A lot of people care about sustainability,» said Ryan Murphy, head of decision sciences at Morningstar Investment Management and a co-author of the research. «This is not just a fringe preference.
«The idea that this is of interest to a subgroup doesn’t really hold.»
Part of the misconceptions that women and millennials are most interested in sustainable investing comes from the way the research is conducted, according to Morningstar.
Most surveys typically ask investors to show their interest in these investments in a certain way, for example by rating them from one to five. In this format, respondents may be more tempted to answer in a way that reflects what they think others want to hear.
«No one wants to say I’m not interested, because that seems cold-hearted,» Murphy said.
In its research, Morningstar instead asked respondents how they would allocate $1,000 between two investment choices. That included Monster Beverage, with a low sustainability rating and 29.15% annualized five-year total returns, versus Walt Disney with an average sustainability rating and 18.22% returns.
It also included Johnson & Johnson, with a high sustainability rating and 18.05% returns, versus Charles Schwab, with an average sustainability rating and 30.24% returns.
Based on their answers, respondents are then given a sustainability preference score, which ranges from zero to 100.
Morningstar applied used this scoring method to profile 948 respondents. Through that research, the firm found that 72% of the population is at least moderately interested in sustainable investments.
Even research that skews toward millennials can show that all generations have some interest in socially responsible investing.
Weekly advice on managing your money
A recent survey from TD Ameritrade found that out of 1,056 adults with at least $250,000 in investable assets, millennials were most likely to consider socially responsible investments, with 43%. Still, 33% of Gen Xers and 25% of baby boomers showed interest in those investments.
«What our survey findings tell us is it really is of interest to all of the generations,» said Samantha Newsom, manager of investment and digital guidance at TD Ameritrade.
There are some key differences in the causes these generations care about, Newsom said. Millennials are more focused on environmental and human rights. Boomers, on the other hand, care more about diversity and religion.
Another key factor determines how much each generation is willing to invest in these initiatives: their investment time horizon.
«Older generations, boomers, are at a different stage of not only their life cycle, but their investing cycle,» Newsom said. «They’re thinking more about retirement right now, versus millennials are just now getting started on their investment journey.»