Ethical Investment Seminar

Sue Watson and Matthew MacLeod15 February, 2009

Engineers Without BordersOttawa Professional Chapter

What is value?

Objective – e.g. asset-based? Speculative – e.g. Dutch tulip craze? Hockey

cards?

Case Studies Begin...

Fundamentals of the Stock Market

How are you really affecting a company by investing or not?

What happens to companies that can't (or “shouldn't”) grow any more?

Borrowing power? Power to buy other companies?

Common stock vs. preferred stock Can vote with common stock, but better dividends

with preferred stock, other special rights

Stock Valuation

• Remember – what is value, anyway?

• Efficient Market Hypothesis• Only changes in fundamental factors, such as profits,

losses, acquisitions or dividends, ought to affect share prices

• However, this is visibly not the case• Tech crash

• Steve Jobs

Stock Valuation

• So what is affecting the price?• risk valuation (e.g. 'risky bets' go down)• psychological factors (tendency to see patterns,

bandwagon effect, certain price levels, etc.)• actually unrelated (but apparently related) negative

economic news

• Note that “expected” growth is already “priced in” to the stock

• Financial guru Warren Buffet recommends a strategy of waiting for stocks to become undervalued due to external factors

Case Study - The TSX

Toronto Stock Exchange The centre of the Canadian financial universe BUT, also the centre of the mining universe

Almost 60% of the world's mining companies listed Rough break-down as of December 31, 2008

~29% in financials (banks) ~27% in energy ~17.5% in materials (mining)

Any Canadian ethical fund needs to confront this reality

The Best in Sector Approach

“Reward the leaders, punish the laggards” Basic argument – even (or perhaps especially)

in the 'worst' industries, it is helpful to encourage companies to become 'less bad'

Vote with your dollars Approach taken by most SRIs... otherwise what

else would they invest in on the TSX? Sends a market signal to companies that they

should improve And... you're profiting in the meantime

Case Study – Jantzi Social Index Perhaps most well-known Canadian 'Ethical'

fund/SRI But does this look like you? Top 10 Holdings :

Engage.. or Avoid?

Is it better to be an 'activist investor' in 'negative' companies, or avoid them?

If you don't vote, you can't complain... but is that really analogous?

If the market is truly efficient, does avoiding make a difference?

Does engaging through an ethical fund multiply your power, or dilute it?

Will you ever have enough voting power?

Counter-Point: What if you live outside the centre of the universe?

Statscan reports <2% of Nova Scotian's mutual funds are in Nova Scotia businesses easier to ignore externalities has significant negative impact on local community

NS Government solution – Community Economic Development Investment Funds “Just Us!” Fair Trade coffee co-op funded in this

manner Several different models – pools vs. single business

Case Study – Shared World Term Deposit

Basically a Micro-loan GIC RSP and TFSA eligbile

Citizens Bank 'Virtual' branchless bank Also have various other programs (Community

Development Fund, Shared Interest Credit Card) CSR policy, carbon neutral

... but 2% return (was more like 4% or 5%)

Case-study – Microplace

Micro-credit marketplace owned by eBay Unlike Kiva, actually offers a return Only one organization offers >3% returns

Two-year return in this case Searchable by poverty level, geographic area,

repayment time, focus areas (women, green..)

Case Study – Property

Hard to lose money in the long-term? credit bubble notwithstanding?

Speculative versus long-term focus Investing in energy efficiency?

if your electricity and heating bills are zero, are you going to need as much retirement money?

What about durable goods? Will that fancy espresso maker pay off in the end?

Case Study – What about family?

Investing for your future implies that you are the one funding your retirement

But in how many cultures and time periods has this really been the expectation?

Can consider your community as a broader extension of family

Community Investment

Can mean different things Philanthropy on (for most of us!) a small scale

e.g. get your name on a bench, or a University brick Ottawa Community Loan Fund

local 'mini'-credit charitable organization Investing preferentially in local businesses

Encourages “enlightened self interest” Volunteerism

how much money have you saved EWB?

The “Local” Tax

Similarly, one can view patronizing local small businesses as investment in one's community

Regularly paying slightly higher prices at your local store means it'll be there when you need it

Keeps money circulating in your community, rather than company headquarters

More personal relationships develop sense of community

Case Study – Partnership/Ownership

High risk, but... Direct impact on your community Directly share the burden of the risk Small is beautiful? La Siembra (local sellers of Cocoa Camino,

etc.) offer RRSPable shares Must hold for 5 years Dividends targeted to 5% (2.5% for 2007/08, met

the previous two years)

Other Types of Co-operatives

Credit Unions/Caisses Populaire Often pay more interest/charge less 1/3rd of Canadians are members

Housing co-operative Tenants also own the building(s) of a co-operative Various rules on how one may buy-in/sell-out

Consumers' co-operative Membership elect a board of directors MEC has 9, also a yearly AGM in Vancouver

Also Retailers', Workers', Agricultural co-ops

Case Study - Commodities/Futures

Futures have a bad rep regarding oil speculators, but...

Really originated to help farms regulate their income closely linked to how Fair Trade works and basically what the food box still is

Carbon credit markets are also structured in similar ways

Case Study – Day Trading

Is essentially the limiting case of trading based on 'technical analysis'

Techniques can involve trend-following, contrarian investing, or range trading

What effect does this have on the market as a whole?

A day trader generally directly selects their products, but may not know anything about what they are/what they do

Investment vs. Aid

So it's come to this... the classic battle royale Is “aid” an investment? Does it pay-off in the

long term?