Happy New Year! A Look Back at the 10 Best Accountable Update Blog Posts

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As we reach the end of another year, I would like to thank our ATX Portfolio Advisors' clients and friends, as well as the growing number of readers who continue to regularly visit this Accountable Update blog. I especially appreciate those of you that have been kind enough to share the content with your friends and colleagues as well!

However, even the most devoted followers may have missed an occasional piece. In the blog world, articles are quickly lost in the fray as new ones pile up each week. So, as I started doing last year, I've compiled my Top 10 Accountable Update Blog Posts for 2017.

Thank you for helping make 2017 a great one, and I wish you a happy and prosperous 2018!

Top 10 Accountable Update Blog posts of 2017

  1. Step Out of Your Shadow - Recognizing Investment Bias

  2. Should You Own International Investments

  3. How to Save for Retirement

  4. Want to be Smarter? Disagree!

  5. Planning for Alzheimer's

  6. Are We Heading for a Bitcoin Bloodbath?

  7. Preparing to Get Hit by Life

  8. Time for a New Pickup?

  9. Feel Lucky? How to Handle a Pension Buyout

  10. Who Needs Long-Term Care Planning?

 

4 Tax Cuts and Jobs Act Year End "To Do's"

In early November, I highlighted some of the changes that were in the tax reform legislation known as the Tax Cuts and Jobs Act. Over the past several weeks, the deal making process was in high gear as some elements expected to be in the bill stayed, while others were left out of the final version.

Instead of rehashing all of the changes though, I thought it may be worthwhile to point out a few end of year "To Do's" that may be worth considering as a result of the new law.

Sustainability Leads to Poor Performance?

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Pension plans have been a common topic in the Accountable Update over the past couple of years. Perhaps you recall?

Feel Lucky? How To Handle a Pension Buyout

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Sustainability? While the title doesn't suggest the article was about pensions, in it, I discussed how the California Public Employees Retirement System (CalPERS) was forced by the California legislature to divest from coal companies by the middle of this year.

If a recent report by a Washington DC think tank, American Council for Capital Formation (ACCF), is to be believed, divestment was a poor choice. ACCF claims that investment decisions based on Environmental, Social, and Governance (ESG) issues are to blame for sub-par performance of CalPERS. 

On the surface, ACCF's premise seems plausible, but if we’ve learned anything in the last couple of years, it is that you can’t believe everything you read or hear in the news. Reporting seems to be increasingly biased by the reporter’s point of view and it is increasingly difficult to know when that is the case. In this case, I wondered if ACCF was pushing an agenda. I decided to see if there was any evidence behind their claim that “prioritizing ESG" comes "at the expense of returns".

Fortunately, DFA offers several Social and Sustainability versions of their Core Portfolios that we can easily compare to one another. In Exhibit 1, I have grouped comparable Core Portfolio funds (these are broad market index funds) next to their counterparts that screen out stocks that don't meet Social or Sustainability criteria. I highlighted the higher performer in various time frames.

Exhibit 1. DFA Core Portfolios vs Social/Sustainability Core Portfolios

As of 11/30/2017. Performance data represents past performance. Past performance is no guarantee of future results, and current performance may be higher or lower than the performance displayed. The investment return and principal value of an i…

As of 11/30/2017. Performance data represents past performance. Past performance is no guarantee of future results, and current performance may be higher or lower than the performance displayed. The investment return and principal value of an investment will fluctuate such that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns include reinvestment of dividends and capital gains and are net of all fees and expenses.

 

As you can see, it would be difficult to make a case that screening out holdings based on ESG issues has led to consistently worse performance. At least based on DFA's experience, it appears that aligning an investment portfolio with causes and issues that an investor deems important may have little or no impact on investment returns.

That is not to say that political pressure on pensions such as CalPERS isn't at least partially to blame for underperformance, but to characterize it as due to "prioritizing ESG" reads as false news. Poor investment selections mentioned in the report probably speak more to the investment managers lack of skill than any social or environmental concerns.

The good news is that those investors that are highly conscious of social or sustainability impacts of their portfolios don’t necessarily have to sacrifice performance.

If you are interested in applying ESG principles to your portfolio, get in touch to discuss.

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