Research & Investment in Sustainable Equity
Current Holdings
Below is the current allocation of the RISE portfolio and its performance. Further down is a brief description of each company and the investment thesis for each position. These positions are current as of March 15, 2016 and will be updated as necessary. Click on the company picture to visit their website and click on the company name and the ticker to get the most recent quote. To see the original buy pitch that was presented to RISE, look in the Resources tab.
Eaton Corporation (ETN) is a diversified multinational power management company that manufactures systems to efficiently manage electrical, hydraulic, and mechanical power. Eaton’s products include electrical power distribution control equipment, truck drivetrain systems, aerospace engine components, and hydraulic power units. Moving forward, the company continues its strong commitment to innovation, exceeding the industry average for research and development spending. Eaton also benefits from both geographically diversified operations and diversification across its business arms, which provides a buffer from the volatility of the energy sector. The company emphasizes a culture of environmental responsibility, and remains a leader in capitalizing on clean technology and renewable energy. For these reasons and more, we see Eaton as an attractive investment from both a financial and ESG perspective. Despite these strenghts, over the past few months, Eaton has been dowgraded three notches by MSCI from AAA to BBB over corporate governance concerns. For this reason, we have placed a stop loss order on the position and plan on considering a full sell pitch in the fall of 2015.
Ingersoll Rand (IR) is a global diversified industrial company headquartered in Ireland, manufacturing recognizable brands such as Thermo King, American Standard, and Club Car. Ingersoll Rand owns a two thirds share of the refrigerated trailer market via Thermo King, and the company earns approximately 50% of its revenue from Trane HVAC systems which are found in approximately half of all American commercial buildings. Ingersoll Rand recently underwent an enormous restructuring effort in 2009, dampening short-term profits while bolstering long-term efficiency and growth. This restructuring helped generate excellent margins, steady growth, and a stronger business model which made the company an appealing financial investment. From an ESG perspective, while Ingersoll Rand performed poorly on the issues of toxic emissions and labor management, the company displayed best-in-class efforts for pursuing sustainability in an inherently dirty and dangerous industry. Although Ingersoll Rand has much to improve upon regarding its environmental and social impact, its best-in-class approach to sustainability and strong financial performance have made the company a strong addition to our portfolio.
The Guggenhein Solar ETF (TAN) indcludes some of the largest manufacturers of solar panels and distributors of rooftop solar systems. Companies included are both American-based and Chinese-based. Purchasing this ETF was in recognition of solar energy's ability to help the energy profile of the world transition towards a more sustainable future. Further, we recognized that while there are many strong individual solar companies in the industry, that the industry as a whole is still quite young. Technology is still rapidly evolving, as are business structures of solar companies of all types. Therefore, we saw purchasing TAN as a way to invest in the general concept of solar energy instead of focusing on one company individually. By doing so, we feel that we will limit our risk of investing in a single solar company that might not keep up with the industry and recognize strong returns as solar energy advances in the future. We sold all shares in the beginning of May over concerns about the biggest component of the ETF: Hanergy Thin Film Solar Group Ltd. The Chinese firm constitutes roughly 12% of the ETF and has raised red flags with potentially fraudulent activity. We viewed this as an excessive risk. Shortly after selling shares, the company's stock value more than halved. In the future we will likely seek individual investment opportunities in the solar industry and will aim to pick companies that are more strongly positioned.
Bought 53 Shares at $40.01 Per Share; Sold at $48.01 Per Share
Past Holdings
Below are past RISE portfolio companies. Companies exit the portfolio for a number of reasons; some changes are dirven by financials and others from declining ESG profiles. These are current as of March 15, 2016 and will be updated as necessary.
Tesla Motors (TSLA) is an American company that designs, manufactures, and distributes all electric vehicles and drive trains. The company has four models, the Roadster, the Model S, the Model X, and the Model III. The first two have been manufactured while the last two are currently in planning. Tesla is also developing a global network of electric vehicle charging stations and is investing heavily in battery storage technology. We purchased a position in Tesla in May of 2014 and sold in December 2014. Although we believe in the long-term success of Tesla, we believe that the company is largely overvalued, especially with a number of headwinds including long-term profitability guidance, car delivery numbers, potential expansion struggles in China and elsewhere, numerous delays in the release of new vehicles, and imminent competition from multiple titans of the automotive industry. We believe that the future success of the company has already been priced into shares and therefore see a future opportunity to purchase shares at a more justifiable level.
Bought 53 Shares at $188.11 Per Share; Sold at $199.10 Per Share
The Bank of Nova Scotia (BNS) is the third largest bank in Canada with 2014 revenue of over $27 billion. Scotiabank offers numerous products including retail banking, brokering, investment banking, and wealth managment. From a financial perspective, we believe Scotiabank is well positioned to continue to deliver superior performance. Savings from resturcturing will prompt growth in net income and in earnings per share. Further, managment aims to focus on increasing dividends, delivering strong returns on equity, and maintaining capital ratios. From an ESG perspective, Scotiabank is a leader in the banking industry as it has lowered its exposure to environmentally damaging loans and investments, broadened its social impacts by increasing loan programs in underbanked regions, and created an incredibly sound, diverse, and effective managment structure.
The MSCI KLD Social 400 Index ETF (DSI) is a broad index of 400 companies that has a focus on companies with positive social impacts. It has tracked the S&P 500 index to within a few hunderd basis points and since its inception in 2007 it has outperformed the S&P 500 Index by over 300 basis points. We purchased this index as a means to ensure initial diversification of the portfolio. In the future, we plan on selling portions of the position in order to free up cash for additional individual investments.
Sainsbury's (JSAIY) is the third largest British grocery chain, providing a range of services from banking to food basics. As part of the “Big Four” British grocers, a group which includes Tesco, Morrison’s, and Asda, Sainsbury stood out as the most appealing investment for three main reasons. First, its stellar ESG performance, particularly in the areas of reducing its carbon footprint, sustainably sourcing its raw materials, and offering customers healthy food options, suggested that Sainsbury would be more resistant to ESG-related risks than its competitors. Second, we purchased shares of Sainsbury at a time when each of the British grocers had lost roughly a third of their market value in the previous six months, mainly due to economic struggles in Europe as well as significant disruption in the grocery market by online, discount, and convenience store shopping. Sainsbury’s efforts to react to these changes, and its general resiliency as a company, suggested that it would survive these difficult times and emerge stronger than its rival corporations. Third, we felt that the enormous sell-off of Sainsbury stock provided an opportunity to make a value investment in a large, innovative, sustainability-driven company.
Keysight Technologies (KEYS), the former electronic measurement division of Agilent Technologies was spunoff into a completely seperate company in November 2014. Keysight is crucial to the development of wireless and cellular infrastructure, working with large wireless providers on technologies such as LTE and 5G. Keysight has continued to grow since the spinoff, driven in large part by the role its technology plays in our growing wireless internet infrastructure. As Keysight continues to develop its own streamlined corporate structure, the company continues to embody Agilent's firm commitment to corporate responsibility and stellar governance policies.
Novozymes (NVZMY) is a Denmark-based biotechnology company that manufactures enzymes, microorganisms, and biopharmaceutical products for use in industrial processes. Novozyme’s products add value to customers and the planet by replacing dirty petrochemicals with biological solutions that reduce waste while saving energy, water, and raw materials. Pioneering the effort to clean up industrial processes, Novozymes has sustainability embedded in its culture, mission, and business model, reflected in its nearly flawless performance by ESG measures. Financially, Novozymes projects organic growth of 8-10% through 2020, supported by heavy investment in research and development as well as a 48% market share of the global enzyme industry. With over 700 products marketing in 130 countries and over 7,000 patents either granted or pending, Novozymes exhibits product diversification, market dominance, and a proven business model which should encourage healthy growth for years to come. Given its stellar ESG measures and bright financial outlook, Novozymes was a strong choice for RISE’s portfolio.
Kingfisher PLC (KGFHY) is a London-based home improvement chain with 79,000 employees and over 1,000 throughout 11 European countries. With 2014 revenue of £11.13 billion, Kinfisher is the third-largest home improvement chain in the world, behind The Home Depot and Lowe's. We invest in Kingfisher for both its phenomenal ESG qualifications as well as its financial potential. Kingfisher is constantly expanding globally, opening 80 new stores just this year. Their dividend and earnings per share have been increasing and they have displayed a promising upward trend on their income statement and balance sheet, as revenues have increased in line with expansion of the company. Kingfisher has launched a "net positive" reforestation and environmental impact initiative, pledging 100% responsibly sourced timber and paper by 2020. They have thus far demonstrated their commitment to this goal. Further, they rank well above industry competitors for raw material sourcing, corporate governance, and chemical safety. Kingfisher holds a huge amount of leverage in the home improvement industry, and manages to comply and often surpass the environmental regulations set out by the EU. Kingfisher's dedication to environmental goals as well as their display, financially, of a definitively upward trend, is ideal for RISE's portfolio.
Opower (OPWR) is an American Software-as-a-Service company providing data solutions to electrical utilties that help customers save energy and use energy more efficiently. The company's main services include energy efficiency, customer engagement, and behavioral demand response programs. We saw Opower as a strong investment for three main reasons. Firstly, its commitment to energy efficiency is an incredibly positive environmental impact. The company already has a strong hold in the $2.2T utility industry with 98 utility customers reaching over 50 million customers. Secondly, they have seen double digit revenue growth in the past two year and are heavily investing in expanding and growing as a company. Thirdly their extremely strong company culture provides an appealing work environment, that will ensure slow turn over of talent. Although Opower is a recently public company, we belive that the long-term vision of the company will ensure future profitability and operational success.
State Street Corporation (STT) is an American financial services holding company with $28 trillion in assets under custody and $2.3 trillion in assets under managment through its Global Advisory arm. State Street provides investment management services for mutual funds, pension funds, endowments, and institutional investors such as investment banks and insurance companies. We decided to invest in State Street because of their outstanding and improving ESG qualification as well as their strong initiative to promote ESG investing. Further, the company displayed healthy profit margins and an attractive price point prompted our decision to include the company in our portfolio.
Badger Meter is a manufacturer of flow management and control solutions, particularly smart flow meters that improve the measurement of such natural resources as water, oil, gas, and chemicals. Given severe drought conditions in California, Brazil, and many other areas around the world, water scarcity has become a pressing sustainability issue, with water being increasingly viewed as one of the planet’s most valuable natural resources. Badger Meter holds a 30% share of the North American smart meter market, a market which helps conserve water and anticipates annualized growth of 11% through 2020. We were also impressed with Badger Meter’s annualized five year revenue growth of 8% driven by strong investments in R&D as well as its high returns on capital. In addition, the company is an associate partner of the Smart Cities Council and a co-chair of the Water Council, partnerships that affirm Badger Meter’s role as a leading corporation in developing commercial solutions to sustainability issues. Badger Meter embodies the concept of a sustainable corporation as resource conservation has bolstered strong financial performance and should sustain growth for years to come.
Schneider Electric (SBGSY) is a French multinational electircal components company with over £24 billion in revenue in 2014. The company is well positioned in the electrical components and power distribution industry. Although the performance in this industry of late has been lacking, we believe that the rebounding European and U.S. economies will drive growth moving forward. Schneider Electric’s management is committed to improving shareholder value via cost cutting and increased efficiency and will deliver increased profitability with the Invensys integration. Further, with a stabilized or rebounding Euro, the ADR will see strong performance not tied specifically to the company. On the ESG side, Schneider Electric is a stellar performer with few issues in any pillar; sustainability is deeply integrated into their core operations. Their mindset of operating with People, Profit, and Planet in mind makes the company a prime candidate for the RISE portfolio.
Agilent Technologies (A) is an American designer and manufacturer of instruments and equipment used in life sciences, medical diagnostics, and chemical applications. Agilent is a well-established giant in the measurement industry. In addition to manufacturing equipment, Agilent is dedicated to finding solutions to contemporary environmental hazards, such as identifying and eliminating food supply chain and groundwater contaminants. We invested in Agilent with the idea that it would continue to supply the growing biotech and wireless industries. In November 2014, Agilent spun off its electronic measurement division into a new publicly traded company, Keysight Technologies. Agilent's diverse operations, streamlined corporate structure, and stellar ESG characteristics make it a sound and responsible holding in the RISE portfolio.