The April edition of The Informed Investor covers recent developments in the global markets, the effect of the war in Ukraine on the renewable energy transition, and a few details on the RBC InvestEase Responsible Investing Portfolios.
One-minute market update
As the war in Ukraine continues, tensions remain high amid slight evidence of diplomatic progress. Russian and Ukrainian officials have met multiple times in March to talk about a settlement between the two countries. RBC economist Eric Lascelles shares some thoughts here on the likelihood of a peace deal(opens new window).1
Sanctions against Russian commodities like oil, gas, and nickel have resulted in Canadian suppliers seeing a surge in demand on the back of a strong economic recovery and the lifting of pandemic-related restrictions.2
The U.S. stock market (represented by the S&P 500 Index) has recovered some of its recent losses, rising to a higher level than before Russia’s invasion of Ukraine on 24 February 2022.3 In contrast, at the end of March, International and Emerging market indices had yet to recover to pre-invasion levels.
As RBC Global Asset Management (RBC GAM) explained in its recently published 2022 Spring Global Investment Outlook(PDF), because Russian imports provide much of Europe’s energy, Europe is likely to suffer from lower supplies and higher prices.2 At the same time, rising food prices are especially painful to populations in emerging economies, much of whose income is spent on food.
There may be opportunities for rebalancing your portfolio in volatile markets like this one. Different investments in your portfolio – for example, Canadian and U.S. equity – perform differently in response to various market conditions, potentially resulting in your investment mix drifting from its original target. As part of the RBC InvestEase service, we employ software that monitors drift and prompts our advisors to buy and sell for your portfolio as needed to ensure that it stays well-diversified and matched to your investor profile.
The war in Ukraine and the green energy transition
RBC GAM’s outlook also noted that, from a long-term perspective, Russia’s war on Ukraine may increase the motivation to shift energy supplies toward renewables. The European Union’s ambitious targets to reduce natural gas purchases from Russia will likely mean greater investment in alternative energy sources like coal and nuclear power and a speedier rollout of renewable energy.4
The first pillar in RBC’s climate strategy(PDF) is to support our clients in the net-zero transition with our products, services, and advice. RBC has committed to providing more investment options for clients with climate related goals. One way that we are following through on that commitment is with RBC InvestEase Responsible Investing (RI) portfolios, and with Earth Day coming up on 22 April, we wanted to tell you a bit more about them.
The funds used in our RI portfolios use ESG ratings by MSCI(opens to external site) to emphasize investment in companies that perform well on the environmental, social, and governance (ESG) measures that are financially relevant to their industries.
For example, the oil and gas industry faces important climate-transition risks because of the high level of carbon emitted by its products. This means that oil and gas companies are likely to be affected by factors such as regulations to limit emissions and changing consumer preferences for more energy efficient solutions. Therefore the ESG ratings for these companies would reflect their management of carbon emissions and their commitment to clean technology and renewables.
At the same time, profits realized by telecom sector companies may be affected by the way in which they manage and protect customer data. Rather than climate threats, privacy and data security would have an impact on their ESG ratings.5
RBC InvestEase is designed to make investing easy, and that same principle guided the construction of our RI portfolios. As with our Standard portfolios, you get a low-cost, automated online investing solution in which professionals do the heavy lifting for you. Plus, our RI portfolios allow you to balance social responsibility and long-term performance because they are built to have expected returns similar to our Standard portfolios.