Trading Portfolio; Momentum 1 year review and climate change book reviews

Trading Portfolio; Momentum

One year ago this real money portfolio was started in order to beat the S&P 500 index using a proprietary momentum method.

In this blog it is time for a one year relative return evaluation and secondly also some thoughts on climate change investments reviewing two books on the topic.

First things first; on the 1st of July 2020 Q3 the Trading Portfolio; Momentum strategy started with $50000 in investments in S&P 500 index companies. Now on the 10th of July 2021 the portfolio is worth $ 70379. Clearly the absolute return has been fantastic, but that is not what is being measured here. How has the relative return versus the S&P 500 fared? Because if the relative return underperforms, it would have been better to just put the $50000 in an S&P 500 ETF and sit back and relax. The VOO Vanguard 500 index fund ETF was put in a paper portfolio with two portfolio tracking websites. On the SigFig website the paper VOO holding would now be worth $70865. In the Stockrover website the paper VOO etf holding would now be worth $70629. So the Trading Portfolio; Momentum underperformed the VOO Vanguard S&P 500 ETF by about 0.7% in the first year.

One year is way too short to be able to draw any conclusions with some amount of conviction; time horizons of between five to seven years are needed for that. Still the early conclusion can be that the first year was a waste of time and effort. The toxic waste rally after November 2020 when the US came out of the recession can probably be blamed for that. The toxic waste rally where value outperforms growth, momentum and quality already seems to be petering out so this is not expected to be a factor anymore in year two of the experiment.

It is time to move on to the second part of this blog post. Alice Ross published a book called “Investing to save the planet” late last year. Bill Gates was not far behind when he published his book “How to avoid a climate disaster”. In 2020 investments mentioned in both books had an incredible run. When Joe Biden got elected as U.S. President he promised more and quicker action on climate change. The stock market got so carried away in climate change investments in January 2021 that this part of the stock market was probably in a bubble. Fast forward half a year later and the air has run out of the bubble. The iShares Global Clean Energy ETF (ICLN) is not the top purchased ETF by retail investors anymore month in month out. In June 2021 the ICLN ETF was the fifth most purchased ETF on the Interactive Investor broker platform. So this theme and this ICLN ETF stay popular, but this is not the most popular theme in the stock market anymore and that is healthy. A little paper basket made in the SigFig website earlier this year is probably one of the few areas of the stock market that is under water YTD....

Anyway the “doing good by investing in stock market companies that are doing good things for the planet” fashion is unlikely to stop in the next decade. Bill Gates pointed out that he had never lost more money than in the battery space and he is a good investor. So that is probably an investment area to be extra careful with. The people from Baillie Gifford have pointed out repeatedly that batteries and the efficiency of solar panels improve year after year. With more and more money flowing into the climate change area the technological breakthroughs can be expected to continue. That doesn’t necessarily mean that these will be profitable investments. Massive amounts of money were put in the internet space in 1999 and 2000 with the Nasdaq bubble as a result. When the tide changed it took the Nasdaq Composite Index almost 15 years to break above the highs of the year 2000. Those massive amounts of money did improve the internet though. Now we can do things with a phone in our hand that we wouldn’t have dreamed of back in the year 2000. Some ESG investment funds have Microsoft and Amazon now as their two biggest holdings according to Alice Ross. Clearly Amazon is one of the giants that survived out of the Nasdaq index rubble after 2000 and the stock has performed spectacularly. It may be time to start looking for investments that are not just green washing, but actually improving our world. There are not a lot of asset managers completely committed to that. Generation Investment Management and Impax Asset Management get the nod here from Alice. Bill Gates set up Breakthrough Energy Ventures. Ambienta is another asset manager identified by Alice dedicated to environmental sustainability. Sarasin & Partners is another partnership with a heritage of responsible investing according to the book “Investing to save the planet: How your money can make a difference”. Triodos Investment Management is another sustainable investment specialist according to Alice. Alice makes the point in her book that investors might prefer to put their money with fund houses that have consistently focused on the environment.

Related to that topic MSCI and Morningstar seem to be self appointed judges on what is and isn’t ESG. Listed companies that practice what they preach in finance on ESG and climate change may become great performing investments. Holland Park Capital London for example has MSCI in the “Cray on” portfolio and the stock’s MSCI performance has been great. Maybe it is time to ditch the polluting oil majors and replace the carbon polluters with the likes of MSCI, Impax Asset Management and Morningstar instead....

The below Stockcharts graph over the last couple of years certainly points into that direction;

So maybe it is time to buy both books and get a good return on investment thanks to the books! Anyway thanks for reading and good luck!

The blog is not advice on what you should do with your money and was written for information purposes only. When you invest in the stock markets it is possible to lose money. Please do your own research. If in any doubt what is best in your individual situation, please hire a licensed financial advisor. Good luck on your investment journey.

Holland Park Capital London hopes you enjoyed the information in the blog. Holland Park Capital London Ltd is not receiving any compensation from anyone to write this blog. Holland Park Capital London is long the stocks MSCI, Impax Asset Management Group, Microsoft, Amazon and Solaredge Technologies. Holland Park Capital London has no business relationship with any company whose stock is mentioned in this blog. Holland Park Capital London expressed its own opinions. This is not advice. Make your own decisions please. Please go and see an authorized financial advisor before making any investment decisions. What works for Holland Park Capital London may well not work for you and your personal situation is unknown to Holland Park Capital London. Stocks go up as well as down and you may get back less than you invest. Any information in this blog should be considered general information and not relied on as a formal investment recommendation. This blog is for information purposes only and helps Holland Park Capital London expand on the book “Beat the Stock Market Casino” and brings extra discipline in the investment process. Holland Park Capital London is not liable for any mistakes in this blog. This blog cannot be a substitute for comprehensive investment analysis. Any analysis presented in this blog is illustrative in nature, limited in scope, based on an incomplete set of information and has limitations to its accuracy. The information upon which this blog is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore the accuracy cannot be guaranteed. Any opinions are as of the date of publication and are subject to change without notice.