This Stealth Investment Megatrend Is Just Getting Started

The No. 1 worry of today's youth... Ignoring their concerns could hurt your portfolio... How perceptive investors are getting in front of the next big shift... Amazon's 'dirty' problem... This stealth investment megatrend is just getting started...

Editor's note: Digest editor Justin Brill is taking a much-deserved vacation for the next two weeks. As always, we'll continue to monitor the markets and let you know about any major developments. We also encourage you to follow the daily updates from our friends at the Stansberry NewsWire – which is free to all Stansberry Research subscribers.

Over the next two weeks, we'll be sharing some never-before-seen essays from Stansberry Research's top analysts and more. We'll start today with Extreme Value analyst Mike Barrett, who discusses an emerging megatrend that everyone should be paying attention to...

Ask anyone younger than age 35 what the world's biggest problem is today...

You'll likely get a quick, two-word answer... Climate change.

In a study released in May 2018, polling and analytics company Gallup said this topic is a primary concern for 70% of Americans ages 18 to 34.

Whatever your personal view is on this divisive topic, you need to understand that for the majority of younger people, the crisis is real. For instance, Frederik Sandby – a 26-year-old from Denmark – told the New York Times last month that he isn't sure he should even have children in a world that "could collapse in 30 to 40 years."

Former New York City Mayor Michael Bloomberg, now a climate-change activist, knows this is a hot-button topic for America's youth. That's why he used his commencement address to the Massachusetts Institute of Technology's Class of 2019 in early June to announce a $500 million campaign to halt the use of coal and natural gas – and to stoke the graduates' climate-change fears...

The question isn't, "How do we tackle climate change?" The question is, "Why the hell are we moving so slowly?" We are in a race against time – and we are losing. With each passing year, it becomes clearer just how far behind we've fallen, how fast the situation is deteriorating, and how tragic the results can be... [My] plan includes political spending that will mobilize voters to support candidates who are actually taking action on something that could end life on Earth as we know it.

The millennial generation (those generally considered to be born between 1981 and 1996) is on the verge of surpassing Baby Boomers as America's largest living generation – if it hasn't already. So what these folks think about controversial topics like climate change will have increasingly important ramifications for the rest of us.

I (Mike Barrett) figure we have two choices... We can either ignore millennials' rising influence on climate change, or we can accept it.

In today's Digest, I'll make a case for the latter. As I'll show you, the performance of your investments over the next decade might depend on it.

In July 2000, United Nations Secretary-General Kofi Annan launched the organization's 'Global Compact'...

The voluntary international initiative was designed to build broad support for 10 principles, covering many areas – like the environment, human rights, and working conditions. (Initially, the Global Compact covered nine principles. But it added a 10th principle against corruption in 2004.)

Also in 2004, in a document titled "Who Cares Wins," financial-industry stakeholders published recommendations for integrating environmental, social, and corporate governance ("ESG") issues into financial analysis and asset management.

(I find the "ESG" acronym increasingly ubiquitous... and mildly irritating. But it saves a few words when writing about it.)

The basic idea behind the ESG principles is that the corporate community should be concerned about things like climate change, workplace diversity, and conflicts of interest.

By creating a framework for measuring ESG data, the financial-industry stakeholders hoped that investors could begin to evaluate companies not just on their financial merits, but on their stewardship of the planet, too.

For example, Sustainalytics is a global company that rates businesses based on their ESG "performance." It thinks highly of iPhone maker Apple (AAPL) and networking-equipment provider Cisco Systems (CSCO). On a 0-to-100 scale, it gives them an 89 and an 84 regarding the environment, respectively. But it rates online-streaming leader Netflix (NFLX) much lower... a 39 for that category.

Today, 15 years after the "Who Cares Wins" report, an estimated 25% of professionally managed assets in the U.S. follow an ESG mandate, according to the U.S. Forum for Sustainable and Responsible Investment. That's roughly $12 trillion.

That figure should get your attention.

And yet, the ESG 'story' is just getting started...

Millennials are just beginning to dominate the workplace the way Baby Boomers did decades ago... They now account for more than one of every three workers, and their passion for putting their money where their values are runs extremely high.

Survey after survey suggests that millennials are eager to pursue investing that makes an "impact." The problem is, few workplace savings and retirement programs currently offer ESG-friendly options.

But this is changing...

For example, global asset manager BlackRock (BLK) says employers it works with are finally starting to see the interest in ESG investing. A recent survey from the company showed that more than 80% of employers who responded and don't already offer these types of strategies said they will likely consider doing so within the next two years.

It's not hard to see where this situation is headed...

As millennials accumulate more retirement assets and the ESG-friendly options increase, the $12 trillion connected to these types of investments today could easily double to $24 trillion over the next decade.

Astute investors are getting in front of this ESG tsunami now, long before that next $12 trillion finds a new home...

As Lucas White, portfolio manager of the $117 million GMO Climate Change Fund, told the Wall Street Journal recently, "Someone is gonna get it right and make a lot of money."

There are a number of interesting approaches taking shape...

European investment veteran Martina Turner believes "climate change is the growth story of our lifetime" and that clean-energy stocks are under-researched and inefficiently priced. Her $36 million Accessible Clean Energy Fund – which invests in roughly 30 stocks focused on energy efficiency and storage, as well as wind, solar, and geothermal energy – aims to exploit the anomaly with superior research and access to industry specialists.

Charles Penner of activist hedge fund Jana Partners sees an opportunity to create shareholder value by pressing companies to adapt to ESG priorities. As he told the Wall Street Journal: "The bet we're making is that we can find companies that aren't doing everything they should be doing, buy them and get them to do better."

Boston-based Trillium Asset Management, with $2.5 billion in assets under management, simply avoids companies generating substantial revenue from coal and nuclear power. The firm also shuns companies with a pattern of discrimination against lesbian, gay, bisexual, and transgender employees, and companies that have been the subject of recent corporate governance controversies.

Finally, Reima Rytsölä – chief investment officer of Finnish pension fund Varma Mutual Pension Insurance – told the Wall Street Journal that "we're trying to pick companies that have an edge inside more traditional sectors." For example, one of Varma's holdings is a major paint maker that created a new product to improve the energy efficiency of marine vessels.

All of these investment strategies share one thing in common...

They're focused on picking ESG winners and losers.

The winners will be companies finding innovative ways to sustainably reduce their carbon footprint, like the newly public Levi Strauss (LEVI).

The company – which went public back in March – has created jeans made from discarded fishing nets and T-shirts. It has also introduced a line of jeans made from hemp, a plant that requires far less water and pesticides than cotton.

Levi Strauss has also committed to sourcing 100% renewable electricity and a 90% reduction in greenhouse gas emissions by 2025.

On the flip side, the losers will be those that don't adapt to the new ESG world order...

Traditional energy is the most obvious sector with a lot to lose. Many oil and gas executives worry that efforts to limit global warming and fossil fuels (like the ones Levi Strauss is pursuing) will render some of their reserves unusable.

(By the way, my colleague Dr. David "Doc" Eifrig recently told his Income Intelligence subscribers all about one oil giant that's preparing for the "end of oil." As spending on new oil reserves slows, Doc expects the savings to go into investors' pockets. This stock is currently yielding around 6% today. Click here to learn more about accessing this research.)

I fully expect the term "stranded assets" to become a bigger part of the investment lexicon over the next decade. By that, we're simply talking about assets that are no longer able to earn an economic return as a result of changes in the market or regulatory environment.

When it comes to ESG factors, one of the most surprising losers so far has been Amazon (AMZN)...

The online-retail juggernaut is a prominent holding of many top exchange-traded funds ("ETFs") – including the Invesco QQQ Trust (QQQ), which tracks the Nasdaq 100 Index, and the Consumer Discretionary Select Sector SPDR Fund (XLY).

But Amazon has zero exposure in two popular ESG-oriented ETFs – the iShares ESG MSCI USA Leaders Fund (SUSL) and the Xtrackers MSCI USA ESG Leaders Equity Fund (USSG). Each ETF manages more than $1 billion in assets. Sustainalytics said Amazon consistently underperforms its peers on ESG metrics, particularly those tracking climate impacts.

The main problem comes from Amazon's fleet of energy-hungry data centers. The company is growing in areas like northern Virginia, where "the grid is quite dirty," according to Greenpeace's Gary Cook. In other words, the fuel source for the electricity has a much higher carbon footprint (more natural gas and coal... and less solar and wind).

And Amazon's "dirty" data centers aren't the only problem...

The recent announcement of one-day shipping for Amazon Prime customers potentially means more trucks on the road producing more greenhouse gas emissions.

If you take nothing else away from today's Digest, I hope you learn this...

The inevitable shift in power and influence from Baby Boomers to millennials is underway and will accelerate over the next decade... Expect ESG factors to become a bigger part of the investing process, and to create new winners and losers.

What's more, there's a lot of runway for this trend to develop... To use a baseball analogy, I estimate the ESG megatrend is only in the third inning of a nine-inning game.

That means there's still plenty of time to adjust to the new realities of an ESG-centric world... and more important, to position your portfolio to profit from this trend.

Speaking of that...

In the July issue of Extreme Value – which my colleague Dan Ferris and I just published on Friday – we recommended one of the world's greatest businesses. This company also gets high marks for its environmental stewardship... Sustainalytics grades it as an "outperformer" relative to its peers.

Over the past decade, this company has retooled its supply chain to accommodate the e-commerce boom. And now, it's taking an even bolder step and making the needed investments to be able to deliver products to 90% of the U.S. in one day or less.

As the next $12 trillion of capital flows into the highest-rated ESG stocks, I believe this company will be one of the big winners. Find out how you can get instant access to this recommendation – and all of our research in Extreme Value – right here.

New 52-week highs (as of 7/12/19): American Express (AXP), First Trust Nasdaq Cybersecurity Fund (CIBR), Dollar General (DG), Disney (DIS), Enterprise Products Partners (EPD), Home Depot (HD), Invesco Value Municipal Income Trust (IIM), iShares U.S. Aerospace and Defense Fund (ITA), Coca-Cola (KO), MarketAxess (MKTX), Microsoft (MSFT), Motorola Solutions (MSI), NovaGold Resources (NG), NVR (NVR), New York Times (NYT), Invesco High Yield Equity Dividend Achievers Fund (PEY), Procter & Gamble (PG), Royal Gold (RGLD), Starbucks (SBUX), Service Corporation International (SCI), ProShares Ultra S&P 500 Fund (SSO), T-Mobile (TMUS), Under Armour (UAA), ProShares Ultra Financials Fund (UYG), Vanguard S&P 500 Fund (VOO), and W.R. Berkley (WRB).

In today's mailbag, a "very happy" Alliance member writes in for the first time to share her year-to-date returns... Do you have a comment or question for us? As always, you can send your notes to feedback@stansberryresearch.com. We can't offer individual investment advice, but we do read everything we receive.

"I am writing for the first time to let you know that I am very happy with my decision to sign up for Lifetime Membership (Alliance) for the extensive suite of Stansberry Research products. At first, I was drawn to Steve Sjuggerud's information on commodities and China; then the DailyWealth Trader, Doc Eifrig, and Porter Stansberry and Dan Ferris' work. Then Ten Stock Trader and everyone else.

"Here is a summary of some of the success I have had this year, as my total portfolio is up 20.62% on the year. (Yes, it did go down during the last quarter of 2018.)

"I followed Steve's recommendations on the commodities and China portfolio and along the way was stopped out of some of the recommendations. I became very interested in gold from some of Porter's work and Steve as well, so I increased my investments in several stocks and ETFs. Along the way, I followed DailyWealth Trader and Ten Stock Trader to do some interesting options trades. Here are my results:

1. Unrealized Gains on Total Portfolio are 20.62% on $2,350,000
2. Unrealized Gains from Gold Investments year-to-date are 14.85% on $145,000
3. Realized Gains from Gold were a slight gain at .86%, as I am letting most of the investments run right now. They are mostly a wash from options trades.
4. Summary, Year-to-Date gains on Gold (not counting the other commodities) is 15.45% with a gain of approximately $22,400.00

"While there have been ups and downs, mostly in my China positions, year to date this is what I have gained by following the Stansberry Research from various analysts. All of which point to the great value of being an Alliance Member.

"Thanks to Porter, Steve, Dan, Ben, Doc, and everyone else at Stansberry for supporting me to gain and preserve wealth for retirement (which is a year away!)

"Oh, and I forgot to mention, also the $1,571 gain on a corporate bond purchased from the Credit Opportunities research!

"My investment in Stansberry and Alliance has been well worth it. Keep up the great work everyone!" – Paid-up Stansberry Alliance member Debbie G.

Regards,

Mike Barrett
Orlando, Florida
July 15, 2019