Flagship ESG Portfolio

2022 is over and we've closed the chapter on an extremely solid year for the ESG portfolio.

The ESG portfolio beat the index in 2022 by 310% (or 8.88% on an absolute basis).

And 2023 is starting the year in a similar fashion. That's because the ESG portfolio is up 9.2% while the index is up 8.4%

While there aren't going to be a ton of changes to the portfolio this month, we do want to make sure we're well-positioned going into the rest of 2023.

Therefore we're changing around some weights and adding in two new investments.

So with that context, let's get into the ESG portfolio updates 👇 

ESG Overview:

Before we dive into our portfolio's updates, if you're new to this strategy then just click here for the original post or read the condensed version below.

If you already know about our ESG strategy, then just skip down to the section labeled, "Performance" below.

The goal of this strategy, however, is to invest in companies -- ethically. What does that mean?

Well, at a high level, ESG strategies help you invest in a way that reflects your values -- in a way that considers the impacts of the companies you invest in.

Therefore our ESG (Environmental, Social, and Governance) strategy is focused on investing in companies that are contributing to the positivity of the world as a whole.

In a nutshell, we're looking at three factors:

1. Environmental: This relates to a company’s negative environmental impacts, such as carbon emissions and other forms of pollution, but it also rewards companies for adopting greener technology.

2. Social: This relates to how committed a company is to social causes, like inclusion and the elimination of workplace discrimination.

3. Governance: This relates to the company’s corporate culture, executive pay, and corruption.

While the companies we're investing in need to have the right financials to merit an investment, they also need to pass this test to ensure their growth doesn't mean our society's demise.

Again if you want to read more about the nuances of this strategy then just click here.

But if you're up to speed, let's get into the portfolio's performance and the newest updates!

Performance:

As we mentioned above, the portfolio has outperformed the index for the 8th straight month.

And while the performance alone is great, we're even happier to announce that this portfolio is also beating the index while investing in "responsible companies".

Aka we're investing in companies that are helping the world while also making money.

But what actually drove our outperformance? 👇 

Looking at the table we can see that our 3 largest drivers of success were due to GWW, TSLA, and AAPL. And while other parts of the portfolio also did well, these three names shined above the rest.

But while counting our wins is great, what's even more important is looking at what went wrong. And when looking at what went wrong, we see that only one thing did: ABBV.

Specifically looking at AbbVie ($ABBV), we see that its 3% weighting contributed to -0.2% of the performance of overall the portfolio. So what happened? 

Two things happened.

1. The first is that the portfolio bought ABBV close to its 6-month high. And while ABBV is up over the last 6 months, the timing of the buy was off.

2. The second is that ABBV has declined sharply in the first few weeks of 2023, but has been rebounding over the last few weeks. The reason for the sell-off was largely due to the fact that its most significant revenue stream, Humira, fell under pressure from the FDA. Humira, which had a near monopoly via its exclusivity, is now under pressure as other companies are able to enter the rheumatoid arthritis space. However in the long run, while the loss of exclusivity for Humira will sting, they should be fine as some recently launched products are in a position to pick up the slack. 

So, after further analyzing our winners & losers, and running them through our algorithm, we get the new portfolio 👇 

New Portfolio:

The only changes (besides the weightings) in the portfolio this month were the addition of HD and the subtraction of HIG.

While we still like HIG, this stock fell outside the scope of our valuation screen for this month.

However, we wouldn't be surprised to see this pop back in depending on how the stock fares over the next month/few months.

Old Portfolio: