The Globe and Mail - 06.11.2019

WEDNESDAY,NOVEMBER6,2019 | THEGLOBEANDMAILO B11

EYEONEQUITIESDAVIDLEEDER

GIBSONENERGY(GEI-TSX)
CLOSE $24.60, UP $1.28

PARKLAWN(PLC-TSX)

CLOSE $28.23, DOWN $1.39

FAIRFAXFINANCIAL(FFH-TSX)

CLOSE $577.74, UP $6.03

SEMAFO(SMF-TSX)

CLOSE $3.93, DOWN 19¢

CANOPYGROWTH(WEED-TSX)

CLOSE $26.17, DOWN 34¢

Seeing a “stronger” outlook, CIBC
World Markets analyst Robert
Catellier raisedGibson Energy
Inc. to “outperformer” from
“neutral.” “Recently eased pro-
duction curtailments (for incre-
mental production shipped by
rail) give us increased confidence
in the infrastructure outlook.
Higher marketing guidance
helps, too, but investors are more
likely to pay up for the higher-
quality infrastructure cash flow
stream,” he said.
Target:Mr. Catellier raised his
target to $26 from $25. Consensus
is $26.27.

Pointing to its valuation and a

lack of near-term catalysts, CIBC

World Markets analyst Scott

Fromson droppedPark Lawn

Corp.to “neutral” from “outper-

former” ahead of the release of its

third-quarter results. “Our call is

not related to a change in PLC’s

fundamentals, nor does it reflect

a shift in our positive long-term

outlook for the company’s busi-

ness model,” he said.

Target:Mr. Fromson’s target of

$30 is below the consensus of

$32.35.

Although she saysFairfax Finan-

cial Holdings Ltd.’scurrent valu-

ation is “attractive” given “firm-

ing” insurance trends and contin-

uing portfolio optimization, Ray-

mond James analyst Brenna

Phelan lowered her target price

for its shares in reaction to the re-

lease of its third-quarter results.

“We would characterize the quar-

ter as mixed,” she said.

Target:She kept an “outper-

form” rating with a target of $760,

down from $780. Consensus is

now $739.34.

Although he deemed its third-

quarter results “poor,” Sprott

Capital Partners analyst Brock Sa-

lier raisedSemafo Inc.to “buy”

from “hold,” seeing it providing

an “attractive” entry point for in-

vestors. “With drill results and re-

source upgrades building on

quarter-over-quarter production

improvement next year, we up-

grade Semafo,” he said.

Target:Mr. Salier maintained his

$4.80 target, which falls below the

$6.62 consensus.

Citing “severe operational ineffi-

ciencies,” National Bank Finan-

cial analyst Endri Leno initiated

coverage of Canopy Growth

Corp.with an “underperform”

rating. Mr. Leno said that Cano-

py’s share of the Canadian recre-

ational market has slid from 37

per cent in the fourth quarter of

calendar 2018 to 25 per cent in the

second quarter of 2019 and pre-

dicts “a further stepdown.”

Target:The analyst set a Street-

low $17.50 target. Consensus is

$40.15.

T

he evidence is irrefutable:
The Earth’s climate is
changing, and the global
economy is providing proof as
severe weather disrupts markets
and supply chains.
The Bank of Canada has sin-
gled out climate change as one
of five major risks facing the
resource-reliant Canadian econ-
omy and financial system.
“It’s not the tree-huggers any-
more. These risks are recognized
by the Bank of Canada,” says Tim
Nash, a financial planner at To-
ronto-based Good Investing.
The growing awareness of the
risks of climate change has
spurred numerous finance-in-
dustry initiatives focused on so-
cially and environmentally re-
sponsible investing. While that’s
positive, some investments may
not meet investors’ criteria when
it comes to protecting the planet.
“There has been a lot of
‘greenwashing,’ where funds will
claim to be socially responsible
and low-carbon, and when you
look under the hood, all of a sud-
den there are companies in there
that investors are shocked to
find,” Mr. Nash says.
To avoid that, he recommends
investors shift their portfolios
away from industries that con-
tribute to climate change and to-
ward opportunities in the green
sector.
“It would be prudent to un-
derweight the fossil fuel sectors
and hedge those risks by invest-
ing part of your portfolio in com-
panies that are going to actually
benefit from this transition,” Mr.
Nash says.
Some climate-branded funds
have come to market recently to
meet the demand for green in-
vestments, but Mr. Nash says he
believes only exchange-traded
funds (ETFs) offer a complete
disclosure of holdings.
“What I love about ETFs is
how transparent they are. With
mutual funds, it’s really hard to
get a full list of holdings, and it
will be a snapshot from six
months ago,” Mr. Nash says.
For instance, Desjardins Glob-
al Asset Management offers a se-
ries of climate-themed ETFs that
range from low-carbon emitters
to fossil fuel-free funds for inves-
tors who want to go further.
Horizons ETFs also offers the
fossil fuel-free Global Sustaina-
bility Leaders Index. Like most
new climate-themed ETFs, it has
yet to register a long-term per-
formance, but so far this year has
posted a return of about 23 per
cent, compared with about a
14.5-per-cent advance from the
benchmark iShares MSCI World
Index ETF.
Mr. Nash attributes the differ-
ence to slumping fossil fuel hold-
ings in the benchmark index, but
he also says his model portfolios
confirm investors don’t need to
sacrifice performance for ethics.

“[Green] portfolios do just as

well, if not a little bit better, than

traditional investment portfo-

lios,” he says.

As more green-branded prod-

ucts come to market, Mr. Nash

advises investors to do their

homework and better under-

stand their screening process.

Britain-based environmental-

investment watchdog Influence-

Map recently analyzed 118 ETFs

and mutual funds around the

world marketed under a climate

theme and found an aggregate

exposure to fossil fuel producers

in line with the benchmark MSCI

World ETF.

InfluenceMap research policy

analyst Adrienne Buller says the

term for funds that don’t reflect

their environmentally friendly or

low-carbon claims is “impact

washing.”

“It’s slapping labels on things

without making any effort to

substantiate impact,” she says,

adding thatgovernment and reg-

ulators need to force ETF provid-

ers to come clean on their hold-

ings and make good on promises

to promote positive change.

Of the climate funds studied,

22 were found to have exposure

to thermal coal or oil and natural

gas reserves. Funds offered by

Asia-based Fullgoal Asset Man-

agement and Lion Asset Manage-

ment were found to have ther-

mal-coal levels 50 times greater

than the benchmark.

BlackRock’s iShares MSCI AC-

WI Low Carbon Target ETF was

also found to hold shares in

Chevron and Shell, which were

identified by InfluenceMap as

big polluters.

“All the major miners and oil

extractors you can name can

probably be found in the full set

of funds we identified,” Ms. Bull-

er says.

Demand for responsible in-

vestment products has surged to

US$31-trillion under manage-

ment worldwide. Of those, US$2-

trillion is estimated to be man-

aged in Canadian responsible-in-

vestment strategies.

Ms. Buller says Canadian regu-

lators and legislators fall behind

the European Union when it

comes to enforcing transparency

and compliance with environ-

mental claims. The EU “is really

breaking ground in this area, and

there’s a lot of opportunity for

Canada to learn from what

they’re doing,” she says, adding

that the primary objective of

clean funds should be to build a

renewable-energy industry.

“We see the solution [as] be-

ing less than just having people

dump all these companies and

more about developing [an] in-

terest that could actually drive

change in the companies’ busi-

ness models,” she says.

Forcing Canadian equity funds

to comply with environmental

claims, however, is easier said

than done, according to Luke

Raftis, manager of extractives

and utilities research at Sustaina-

lytics B.V., an independent re-

search firm. Roughly one-third of

publicly listed Canadian stocks

are related to natural resources,

which limits choice.

“In Canada, a lot of funds are

based on the TSX benchmark.

The TSX is very energy-heavy, so

there are difficulties in creating

products that are completely fos-

sil fuel free. It’s a limited pool to

draw from,” Mr. Raftis says.

Sustainalytics applies up to 70

ethical standards to more than

14,000 public companies on be-

half of clients, which often in-

cludes climate-themed funds.

Mr. Raftis says that, as demand

grows, determining what is eth-

ical and what is not ethical be-

comes more complicated.

“We’re adding indicators and

refining them; in some cases re-

moving indicators that don’t

provide a fair comparison across

the universe,” he says.

In many cases, the results are

open to interpretation. “There

are some things that are market-

ed as green in a very broad sense

that have some things that cer-

tain investors would disagree

with,” Mr. Raftis says.

Even if a company ranks low

on the Sustainalytics ethical

scale, Mr. Raftis says it’s up to the

client to determine if the find-

ings will be applied to a fund. In

some cases, other ethical re-

search firms are consulted and

findings are cross-referenced.

“Our clients ultimately decide

how to construct these products

or whether to include certain

companies in their portfolio,” he

says. “Even if they’re buying our

research, they can choose to cast

a very broad net in terms of what

they define as green.”

Special to The Globe and Mail

Somefundsthatclaim

tobeenvironmentally

responsiblemaynot

meetinvestors’criteria

DALEJACKSON

Buildinganecofriendly

portfoliowhilesteering

clearof‘greenwashing’

ISTOCK

CANADIANSTOCKS

Canada’s main stock edged higher despite the majority of

corporate earnings missing expectations so far this quarter.

The S&P/TSX composite index closed up 12.11 points, at

16,681.92 – less than 15 points off its all-time high. Eight of the

11 major sectors on the TSX were higher, led by energy, which

rose 1.2 per cent as shares of Encana Corp. surged 8.2 per cent

on heavy trading amid climbing crude and natural gas prices.

The heavyweight financials sector gained more ground,

with Fairfax Financial Holdings Ltd. up 6 per cent, while ma-

terials rose despite lower gold prices, with Nutrien Inc. shares

up 1.2 per cent on a positive outlook for 2020.

U.S.STOCKS

The benchmark S&P 500 edged lower, as investors paused in

the wake of a rally buoyed by hopes of a trade deal between

the United States and China that sent the three main U.S.

stock indexes to record highs in the previous session.

The Dow Jones Industrial Average rose 0.11 per cent, the

S&P 500 lost 0.12 per cent and the Nasdaq Composite added

0.02 per cent. A 2.05-per-cent rise in Boeing’s shares provided

the biggest boost to the blue-chip Dow Jones index after chair

Dave Calhoun said the company’s board believed chief exec-

utive Dennis Muilenburg “has done everything right” after

two fatal crashes of its 737 Max jet.

COMMODITIES

Oil prices rose more than 1 per cent on hopes for a U.S.-China

deal and optimism that Washington could roll back some tar-

iffs on Chinese imports.

FOREXANDBONDS

The Canadian dollar edged lower against its U.S. counterpart,

pulling back from an earlier six-day high as the greenback

benefited from hopes the U.S. and China were moving closer

to a deal.

The U.S. dollar rose, while a rally in global equity markets

edged higher after China pressed U.S. President Donald

Trump to remove recently imposed tariffs. The U.S. dollar in-

dex rose 0.48 per cent against a basket of major currencies.

REUTERS, THE CANADIAN PRESS

Marketssummary

REPORTONBUSINESS |

B

ond ETFs are an example of how a simple, sensible

investment can get complicated in a flash.

A reader reminded me of this with a recent query.

“I’m selling some equity ETFs and buying bond ETFs.

Do you suggest one that focuses on long- or short-term

bonds?”

What I suggest is that this person research a broad, all-in-

one bond exchange-traded fund, such as the BMO Aggregate

Bond Index ETF (ZAG), the iShares Core Canadian Universe

Bond Index ETF (XBB), the TD Canadian Aggregate Bond In-

dex ETF (TDB) or the Vanguard Canadian Aggregate Bond

Index ETF (VAB).

When you buy ETFs such as these, you’re buying the entire

bond market in a single go. Short-, medium- and long-term

bonds, corporate andgovernment, federal and provincial.

Blended together into a benchmark such as the FTSE Canada

Universe Bond Index, these various bonds produce an after-

fee yield to maturity of around 2 per cent (yield to maturity,

or YTM, is the best measure of a bond ETF’s yield). Manage-

ment-expense ratios for broad bond ETFs are in the 0.09-per-

cent to 0.1-per-cent range, which is quite reasonable.

A more defensive approach would be to buy a short-term

bond ETF, which holds bonds maturing in five years or less.

Short-term bonds are more resilient in a rising-interest-rate

environment, but the yields are kind of thin. A higher-yield-

ing long-term bond ETF (holding bonds maturing in 10 years

or longer) would be an aggressive, speculative move de-

signed to capitalize on falling rates. If rates were to rise, long-

term bonds would plunge in price.

Holding a broad-market bond ETF means you’re posi-

tioned somewhere between the low-yield, lower-risk profile

of short-term bonds and the high-risk, high-reward profile of

long-term bonds. For a long-term investor more concerned

with growth than capital preservation, this makes sense.

One last thought: Consider guaranteed investment certif-

icates as a bond ETF alternative. GICs are illiquid, while bond

ETFs are the picture of liquidity, in that you can trade them

any time during market hours. The reward from GICs is

somewhat higher yields than bond ETFs – if you use alterna-

tive banks or credit unions – and zero volatility. GICs don’t

change in price as rates rise and fall; you just buy them and

hold until maturity.

Thequick,easywaytoget

bondsintoyourportfolio

ROBCARRICKPERSONALFINANCECOLUMNIST

INSIDE THE MARKET