Response to Short Run Market Corrections and Entelligent Smart Climate® by Dr. Pooja Khosla
Entelligent’s Smart Climate technology is focused on identifying the companies across sectors and regions that are most susceptible to climate and energy shocks. The COVID-19 market disruption along with other global events such as Saudi Arabia’s declared oil price war with Russia provides an opportunity of a natural experiment to test Entelligent’s data and technology platform. Entelligent recently published a report on testing efficacy of the scores. In the report Entelligent correctly identified 4 of 5 biggest “losers” of the day (tickers OXY, MRO, PBR, EQNR, BP; Entelligent had BP at 11th not 5th). Entelligent correctly identified 4 of 5 biggest "winners" of the day (tickers XEL, AEP, NEE, DUK, DAL; Entelligent had DUK at 8th not 4th) for 3/11/20 market dip. The published report is available here.
This week in what started out as a volatile trading session, stocks found their footing at least for the time being and moved solidly higher. The Dow Jones Industrial Average gained 1,315 points on 3/25/2020 at its session high, as traders cheered progress on the $2 trillion stimulus package. This policy stimulus provides Entelligent another opportunity to shock-test the portfolio that uses Entelligent Smart Climate® as a screening tool.
The research question here is “do portfolio comprised of securities that show superior climate and energy risk ranking lead the benchmark in regaining the new market equilibrium?” The answer to this question appears to be yes.
Entelligent used two globally recognized benchmarks SPDR S&P 500 ETF Trust and I Shares MSCI ACWI ETF to test this application. All security constituents were ranked using Entelligent Smart Climate. The scores were normalized within the GICs economic sectors. From each sectors the securities associated with the scores better than the sector median scores were screened in the Smart Climate portfolios. The results indicate that Smart Climate 500 out performed the benchmark SPDR S&P 500 ETF Trust by 7.1% and Smart Climate 500 World outperformed IiShares MSCI ACWI ETF by 17.1%.
Entelligent believes that this makes it clear that industry needs short run assessment of climate transitions both to manage risk and to identify future robust investment opportunities.
Table 1 - Compares the portfolio returns of Smart Climate 500 with benchmark SPDR S&P 500 Value ETF. (Source: FactSet)
Table 2 - Compares the portfolio returns of Smart Climate World with benchmark iShares MSCI ACWI ETF. (Source: FactSet)
Figures 1, 2 and 3 below show that in the sectors such as Communication Services, Financials and industrials these differences were highly relevant and visible. The portfolio returns indicate returns of Smart Climate 500 within the sector relative to the benchmark.
Fig 1 – Communication Services within SPDR S&P 500 Value ETF. (Source: FactSet)
Fig 2 – Financials within SPDR S&P 500 Value ETF. (Source: FactSet)
Fig 3 – Industrials within SPDR S&P 500 Value ETF. (Source: FactSet)
In conclusion, different sectors and regions have different capacities to manage climate shocks. Investors need data points that are robust in identifying both risk and opportunities amidst current and most expected future climate, energy, policy and technical transformations which now are more obvious with the COVID-19 disruptions that we are collectively experiencing as global producers, consumers and investors. We hope that the new recovery we land on after these disruptions are more in favor of IPCC and UN’s desired 2.0 and 1.5 degrees climate change goals.
Entelligent is a climate risk data and technology platform that provides tools to asset owners, asset managers, consulting firms, rating agencies, and fiduciaries in managing their exposure to climate change risk. Entelligent’s mission is to help investment portfolios and strategies incorporate the new realities of climate change from rising temperatures to energy transitions to a low carbon economy into their decision-making processes.
Entelligent’s Smart Climate® data, analytics, and consulting use multi-scenario analysis and state of the art climate and financial modeling to analyze the impact of transitioning climate and energy trajectories on public security performance to provide guidance on mitigating climate change risk in investment portfolios. The scenarios for climate and energy shock testing are curated using actionable multiple energy prices, demand and supply predictions along with policy and technological transformations. It is crucial for investors to evaluate what companies are most exposed to such global market transitions and what companies qualify as climate risk managed opportunities in the investment portfolios.
This Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained in these reports constitutes a solicitation, recommendation, endorsement, or offer by Entelligent or any third party service provider to buy or sell any securities or other financial instruments in this or in in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.
All Content in these reports is information of a general nature and does not address the circumstances of any particular individual or entity. Nothing in the Site constitutes professional and/or financial advice, nor does any information in these reports constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. Entelligent is not a fiduciary. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other Content on the Site before making any decisions based on such information or other Content. In exchange for these reports, you agree not to hold Entelligent, its affiliates or any third-party service provider liable for any possible claim for damages arising from any decision you make based on information or other Content made available to you through these reports.