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Dual Impact Investing: Improve the Planet and Your Portfolio’s Potential

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Dual Impact Investing

This infographic is available as a poster.

Dual Impact Investing: Align Your Investments With Your Values

Amid the popularity of sustainable investing, a challenge has arisen. Investors are becoming more concerned about “greenwashing”, where the financial industry makes false or misleading sustainability claims. In fact, 59% of global investors cite “greenwashing” as the biggest challenge to investing sustainably. Luckily, there’s a solution: dual impact investing.

Through dual impact investing, investors are able to better understand the effect their investments are having on the world. This graphic from New York Life Investments explains what dual impact investing is and explores a few of the compelling investment themes.

What is Dual Impact Investing?

With dual impact investing, the goals are two-fold:

  • Enhance your portfolio’s potential: The fund invests in an environmental, social, or governance (ESG) theme with a growth opportunity.
  • Make a social or environmental impact: The investment manager donates a portion of their profits to a designated non-profit related to the fund’s ESG theme.

This approach aims to increase return potential, while also contributing to a more sustainable future for our world.

Compelling Themes for Investment

To see what this looks like in practice, let’s take a look at a few of the investment themes.

1. Blue Economy

The blue economy involves targeting companies that are based in, and actively good for, the ocean. For example, this can include businesses focused on:

  • Sustainable oceans
  • Cleaner shipping
  • Pollution reduction
  • Carbon efficiency
  • Clean energy

What is the opportunity?
U.S. blue economy sales growth was 5.1% from 2018-2019, more than double that of the U.S. economy overall. In addition, ocean-based exports are valued at over $2.5 trillion globally.

2. Green Transportation

Green transportation involves targeting companies that advance sustainable transportation through cleaner energy products and solutions. This can include businesses focused on:

  • Transportation equipment and services
  • Clean energy resources
  • Technology that increases transportation efficiency
  • Infrastructure components

What is the opportunity?
Global EV car sales are projected to increase more than 7.5 times from 2020 to 2030. More broadly, the global renewable energy market is projected to grow at a compound annual growth rate of 8.4% over the next decade.

3. Gender Equality

Gender equality involves targeting companies that are leading in gender equality within the workplace. For instance, this can include businesses focused on:

  • Gender balance in leadership & the workforce
  • Equal compensation & work-life balance
  • Policies promoting gender equality
  • A commitment to women’s empowerment

What is the opportunity?
Of global companies with gender diversity in management, nearly three-quarters report profit increases of 5-20%. Not only that, improving gender equality could stimulate economic growth. In a “best in region” scenario—where each country’s progress matches that of the country in its region showing the most progress towards gender parity—annual global GDP could rise by almost $12 trillion by 2025.

4. Heart Health

Heart health involves targeting companies that treat heart disease, or help people lead healthier lifestyles. This can include businesses focused on:

  • Diagnosing or treating cardiovascular disease
  • Promoting regular exercise and tracking fitness
  • Healthy food and wellness products
  • Health education through IT services

What is the opportunity?
The global cardiovascular drug market is expected to grow at a compound annual growth rate of 4% from 2020-2025. In addition, health conscious consumer-packaged goods saw impressive sales growth in 2019. For instance, fresh food sales grew by $4.6 billion.

Why Dual Impact Investing is Meaningful

By investing in these growing themes, investors have the potential to capitalize on shifting consumer sentiment and more stringent regulations.

The two-sided approach allows investors to:

  • Express their values through their investments, by accessing ESG opportunities.
  • Make a concrete impact, with contributions coming from investment manager profits—not investors’ own pockets.

Through dual impact investing, investors can improve their portfolio’s potential and the planet.

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Infographics

Rising Rates: Why Value Stocks Have Outperformed

During periods of rising interest rates, value stocks have historically outperformed growth. Below, we explain the factors behind this trend.

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Value Stocks

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The Benefits of Value Stocks in Rising Rate Environments

As investors flock to safety, value stocks have outperformed growth stocks year-to-date amid economic turbulence and rising interest rates.

Owing to their strong fundamentals and cash flows, value stocks may be returning into favor.

In this infographic from New York Life Investments, we illustrate why value stocks offer opportunities in rising rate periods.

Recent Performance

In a matter of two years, the Ukraine war, supply chain shocks, and COVID-19 have led inflation to multi-decade highs.

Amid these complex struggles, value stocks have outperformed significantly.

  • Russell 1000 Value Index: -1.1%
  • Russell 1000 Growth Index: -14.1%
  • S&P 500: -8.4%

As of April 14, 2022

With higher inflation predicted for the medium term, value stocks may be staging a comeback.

As investors look to de-risk their portfolios, many are turning to value stocks, thanks in part to their historical outperformance during inflationary and rising rate periods.

Value vs. Growth: Key Characteristics

As a quick refresher, here are the key distinctions between value stocks and growth stocks.

CharacteristicValue InvestingGrowth Investing
Defining FeaturesCompanies with stronger cash flows, steady income, priced below intrinsic value.Companies with lower cash flows, low (if any) income, strong earnings growth potential.
ValuationUndervalued (low P/E ratios)Overvalued (high P/E ratios)
DividendsMore commonLess common
VolatilityLowerHigher
SectorsFinancials, Energy, Healthcare, IndustrialsTech, Communications, Consumer Discretionary

Cyclical sectors such as financials and energy often benefit when prices increase after an economic contraction.

Since companies earn money in different ways, it is often useful to compare price-to-earning (P/E) ratios within a sector. A P/E ratio is a metric for valuing a company, where a company’s stock price is divided by its earnings per share.

An overvalued company in the tech sector may have a P/E ratio of 100, while the S&P sector average is 24. By contrast, an undervalued healthcare company may have a P/E ratio of 14, lower than the S&P sector average of 16.

When a company is undervalued it means that it’s trading below its intrinsic value.

Value vs. Growth: Performance

Looking back, the previous decade saw the worst performance for value in the last 90 years.

On average, growth outperformed value by 7.8% annually since 2010. However, looking at 10-year periods, value has outperformed growth over every decade since the 1940s.

DecadeValue Outperformance
1930s-0.5%
1940s10.8%
1950s5.6%
1960s4.2%
1970s8.1%
1980s7.4%
1990s0.7%
2000s8.0%
2010s-2.6%

Average annual performance of Fama and French (“HML”) value factor by decade.
Source: Fama & French via Mercer (Mar 2021)

Now, against economic uncertainty and other structural shifts, the growth and value divergence is beginning to change for the first time in over a decade.

What is Driving Value Stocks?

On a broader level, the following forces have driven outperformance in value stocks and growth stocks.

 Value InvestingGrowth Investing

Broad Market Factors
  • Rising interest rates
  • Market recovery
  • Inflationary environment
  • Long-term earnings track record
  • Low interest rates
  • Bull market
  • Disinflationary environment
  • Rising corporate earnings

So how do these apply today?

In an inflationary (and rising rate) period, current earnings become more valuable and future earnings become less valuable. Typically, “value stocks” are assessed based on their current earnings while “growth stocks” are valued on their future earnings.

Consequently, inflationary periods have tended to favor value stocks and deflationary periods have tended to favor growth stocks. When prices are climbing, companies with actual earnings are potentially better positioned to increase prices and retain profit margins.

At the same time, it is important for investors to avoid value-traps, which are companies trading below value that are in financial duress. To help mitigate this challenge, active investment managers can help identify the appropriate companies.

Sign of the Times

It’s worth noting that this isn’t about value vs. growth. Instead, different styles have performed better at different times. Of course, it’s important for investors to consider a number of variables for their portfolios:

With these in mind, investors can implement the best strategies to help achieve their goals.

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Infographics

How to Optimize Retirement Plan Design for Your Client

Here’s how advisors can enhance retirement plan design to help employees and plan sponsors reach their retirement goals.

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Retirement Plan Design

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How to Optimize Retirement Plan Design for Your Client

More than ever, retirement plans are looking at an employee’s entire retirement picture.

In line with this trend, advisors are offering personalized services to help people reach their goals. But as retirement plans begin to expand their products and services, unidentified gaps remain in employees’ retirement needs.

To help advisors identify these disconnects, this infographic from New York Life Investments shows the key priorities across both employees and their employers to help optimize retirement plan design.

Are People Achieving Their Retirement Vision?

Today, retirement is an issue that can no longer be ignored.

Nearly 70% of Americans say the country faces a retirement crisis and 54% are worried about a financially secure retirement. Making matters worse, the pandemic has led one in three workers to rethink their retirement timeline.

To look deeper into retirement plan design, NYL Investments partnered with RTI Research, surveying 800 people:

  • 500 Plan Participants: Employees with 401(k)/ 403(b) plans
  • 150 Plan Sponsors: Companies offering 401(k) plans
  • 150 Plan Providers: Advisors providing 401(k) services

Here are the results they found.

Preparedness for Retirement

Two structural trends—lack of savings and not having access to a retirement plan at work—are impacting retirement readiness today.

By a significant margin, the survey found that men (45%) feel more prepared for retirement than women (30%), which may be explained by historically higher earnings.

How does retirement preparedness break down by age group?

AgeVery Well PreparedSomewhat PreparedNot Very Well Prepared
20s45%23%21%
30s42%44%14%
40s30%41%29%
50s34%38%28%
60s37%53%9%
Average37%42%21%

On average, 37% of employees felt very prepared. Despite those in their 40s often hitting their highest-earning potential, employees in this age bracket felt the least prepared.

Retirement Plan Features

What aspects of their retirement plan did survey participants feel very satisfied with?

Feature% Who Feel Very SatisfiedSomewhat PreparedNot Very Well Prepared
Employer commitment to retirement preparedness58%23%21%
Plan provider62%44%14%
Plan performance58%41%29%
Ease of account management66%38%28%
Number of investment options given58%53%9%

Compared to other variables, participants felt most satisfied with the ease of account management of their retirement plan along with their plan provider.

Retirement Plan Design: 3 Key Priorities

When it comes to actual planning for retirement, what were the three most important factors among participants?

  • Right balance of growth & risk in portfolio: 84%
  • Saving enough for retirement: 86%
  • Work-life balance: 87%

Interestingly, the importance of work-life balance increased with age.

While 78% of people in their 20s said this was very important, it increased to 92% of people in their 50s. The same pattern emerged for having enough savings for retirement. Over 75% of people in their 20s said this was extremely important. For those in their 50s, this jumped to 96%.

Retirement Plan Design: 3 Gaps

Let’s now look at some of the biggest gaps in retirement plan design. Here is where participants were least satisfied with their plan provider:

Service% Satisfied
Managing the cost of healthcare53%
Having a roadmap to ensure I’m doing the “right thing” to plan for retirement57%
Working to get out of debt67%

As the above findings suggest, not only are participants looking for guidance with their 401(k) investments, they are looking for personal financial advice on managing debt and healthcare costs.

These gaps make sense: the U.S. has the highest healthcare costs in the world, averaging $12,500 per person per year or three times higher than the OECD country average.

The Employer’s Perspective

Let’s now take a look at how employers viewed retirement plan design.

Retirement Plan Design: Key Priorities

Across all firms, what were the three most important factors for their employees?

  • Managing the cost of healthcare: 90%
  • Saving enough for retirement: 85%
  • Work-life balance: 85%

Both employers and employees alike placed saving enough for retirement near the top.

Retirement Plan Design: 3 Gaps

Which services do employers offer the least?

Service% Offered
Working to get out of debt23%
How to access Social Security and other retirement accounts33%
Saving enough for retirement34%

Interestingly, while 85% of employers place saving enough for retirement as a key priority, the vast majority of employers don’t offer these services in retirement plans.

To address these gaps, advisors can create a well-thought-out financial wellness program for employers that bridges the disconnect.

Understanding the Disconnect

Over the last five years, retirement plans that offer advice have risen 44%.

The evidence is clear: employers value providing their employees personalized advice. Here are some key insights on providers, and where the disconnects lie.

Plan Providers: Key Disconnects

While 93% of all plan providers surveyed offer advisory services, just 62% offered services that were educational.

Meanwhile, younger advisors felt employees had stronger financial literacy and knowledge of retirement services compared to more tenured advisors by a wide margin. A similar trend followed for advisors at smaller plan providers versus larger firms.

However, more tenured advisors at larger firms were more likely to offer in-person consultations at the workplace. The same was true for providing employees with information to make more informed investment decisions.

Next, while some of the largest disconnects from participant and employer needs center around managing debt and healthcare costs, the majority of plan providers don’t offer them:

3 Gaps in Providers% Offer Service
Working to get out of debt35%
Managing cost of healthcare29%
Work-life balance34%

Importantly, new opportunities arise when advisors connect with participants and employers in areas that matter most.

Optimizing Retirement Plan Design

When employees and sponsors are active participants in their retirement journey, advisors can provide human-centered advice, personalized skills, and holistic planning models.

Based on the above findings, advisors can strategically enhance retirement plan design to align with participants’ and employers’ financial needs.

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