The Canadian Investor - Why Stocks Go Up & ESG to Charge Higher Fees?

Episode Date: December 12, 2022

Financial media headlines constantly talk about the Dow Jones Industrial index but is it relevant? Are ESG ETFs a way for fund managers like Blackrock to charge higher fees? What drives stock returns over different time periods? We answer those burning questions in this episode of the Canadian Investor Podcast. Tickers of stocks discussed: AAPL, MSFT, GOOG, AMZN, BRK-B, TSLA, UNH, JNJ, V, XOM, TSMC, WMT, NVDA, JPM, TCEHY, MC.PA, PG, LLY, MA, ESGU, IVV, VEGN, QQQ, XESG.TO, XIC.TO Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense. Register for ShakepaySee omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. How are we? Today is December 7th. Welcome into the show. My name is Brayden Dennis, as always joined by the wonderful Mr. Simon Belanger. How are you doing, sir? You just came out of, this is very Canadian of you,

you just came out of a Canadian tire in Ottawa and it's their like new flagship store. Is this correct? Yeah, I think it's the largest in Canada. They just opened it about a month ago, which is funny because in the same area, they had one that was relatively new, maybe a decade old and two stories, the old one and the new one is just two stories, but one of their levels is actually bigger than the entire store of the other one. Jeez. So, this thing's an absolute unit. Okay. Interesting. But it didn't smell as good as Home Depot, I presume. I think that's fair. Not quite. Yeah. More rubbery. But it does have a party city in there. Okay.

Yeah, that was an acquisition, like, I don't know, maybe like 10 years ago now? Does that sound about right? Yeah, maybe a bit less, but yeah, it was some years ago for sure. Six or seven, yeah. Very cool. Well, welcome into the show, everyone. We have a bit of breaking news, and then we'll get into we'll get into long-term investing mindset, thinking our framework, some interesting things. I'm going to go back to a time of 1989 and give you a state of the market then compared to now. I think that it's an interesting analysis,

gives us an idea of the laws of competition over time. You're going to talk about some ESG stuff and asking the hard questions, which I think is very valuable. But before that, since we're recording this December 7th, breaking news, the Bank of Canada had an announcement this morning. What happened? Yeah, yeah. So, I mean, I guess a lot of people were following that. If you're a homeowner, you probably were keeping a close eye on it, especially if you have a variable rate mortgage. So they announced with their statement that they were raising the overnight rate by 50 basis points.

Basis points, it's just like, you know, one basis point is 0.01. So they were raising it by 50 basis point to 4.25%. The last time rates were this high was in 2007, right before the great financial crisis. It's been quite some time and just the like how rapidly interest rates have risen this year. And I'm sure when we do our year in review, that'll definitely come up because it's had a big impact on certain stocks, certain sectors for sure. And the statement released by the Bank of Canada was definitely a mixed bag. So you can interpret it a few different ways here. It's hard to say what they'll do on the January 25th meeting that's coming up. That's their next

one, their next announcement. On the one hand, they said that the GDP growth was stronger than expected, but they are seeing signs that things are slowing down. They said that the GDP growth was stronger than expected but they are seeing signs that things are slowing down they mentioned that the decline in the housing market continues which you know duh it's kind of everyone can see that pretty clearly with the data from I believe it's the Canadian Real Estate Association that comes out with that pretty regularly, they also said that inflation remains high at 6.9% and core CPI, the metric they look at, was around 5%. At their next meeting, they said they will consider if further rates are needed. The last phrase of the statement was especially telling is that we are resolute in our commitment to achieving 2% inflation target and restoring price stability for Canadians.

So that's what they finished last sentence of the statement. So I don't know what they're going to do. I mean, you probably don't either. And people who want to tell you that they know, I know on TikTok, it's pretty popular to try and make speculation. Everyone's an economist on TikTok. Yeah. And I'm sure Tiff McLean will be talking the next couple of weeks just to give his take on where things are going. We're probably going to get a bit more information on where he's thinking. But right now, if you read the statement, it's not very long. You can probably make arguments that they're going to keep the rates as is or

make increases. I don't think lowering rates is going to happen anytime soon though. Yeah, man. How many times do I say this? This is a job. You couldn't pay me enough money possible to do for many of the reasons. It's such a damned if you do, damned if you don't position constantly for the Fed. And you know what? Yeah. I like that you stated that at the end too, which is this is impossible to predict historically and it has been impossible to predict this year as well. It's just making a guess and at the end of the day, you find out when everyone else finds out, right? That's just the game that we're playing here. Yeah, no, exactly.

Nothing more to add here. I'm sure we'll get some more tidbits of information on that in the next few weeks before. Maybe as a nice Christmas present. Yeah, the Bank of Canada said Merry Christmas this morning, heading into the holiday season. All right, let's talk about something I found very interesting. So I shared yesterday because we put together, I believe, well, best of my knowledge and people who are reacting to it as well, the best compilation of super investor and hedge fund letters in the world. You can find this and Simone, we should link this in the show notes. It's stratosphere.io forward slash fund dash letters. So it's stratosphere.io forward slash fund dash

letters. And you can go through and it's always updated of famous investors and notable hedge fund compilations of their letters over time. And so, I was looking at some cool ones. And there's a Canadian firm, Giverny Capital. And I found in their shareholder letters, like on the compilation on page like 100, because their letters go far back. And I thought there's all these little interesting tidbits that come out of these long shareholder letters, especially when you're looking at them year over year. And this fund's done exceptionally well. And they own mostly North American, mostly US stocks, and some CAD ones, but it's a Canadian firm. And they did some annual performance return decomposition and found something interesting. So this is for the Roshan Global Portfolio,

which is the last name of the fund manager. Over the last decade, it had returned 18.2%, which is obviously great returns. And they attributed it to three main things. Foreign currency gain relative to Canadian dollars, which was 2%, 2.2%. So they're saying, okay, we got a nice little bump from the change in currency. Only 1% from increase in PE ratio from their holdings. So that just means that for the most part, the companies that they have held, the multiples have actually not changed at all. They haven't got some company that re-rated from 10 times earnings to 20 times earnings and got some huge returns from there. It has been 15% of the return decomposition from growth in corporate profits, including dividends. So I'm titling this section, multiple expansion is nice, but it's not needed. And I just mean that exactly how it is. If I'm buying a stock, because I think it's relatively undervalued or fairly valued, I almost never and now less than ever is buy a stock hoping that the multiple increases and I get some sort of

re-rate on the stock. It's trading too cheap. I buy it at 16 times earnings and now it trades at 22 times earnings. That's great. If that happens and you get that multiple expansion, that's called the twin engines and most multi-baggers have that. If you get that, that's great. It's nice, but it's not needed. And over time, the return decomposition from a lot of these great investors actually come from the growth of corporate profits and free cash flow and dividends of the companies that they're invested in. So if they get that twin engine of multiple expansion as well, that's great. But relying on it in your investment thesis, I think is a game that I just don't want to play and is just not needed. Although it is sure definitely nice and going to give you a boost

over time. Yeah. And it feels like I don't have data to back this up, but it feels the longer you look, the more it's going to be growth in earnings. That'll be the driving factor and obviously growth of the company. But obviously, if you're looking more at short to medium term, I can still make a case if you go back to the financial crisis right in 2008, 2009. And if you're looking specifically at canadian banks the whole financial sector right you had canadian banks that were still doing really well but they were hammered because you know there was some pessimism when it came to the financial sector so clearly a lot of the gains probably in the following five years, I would assume were related to that multiple expansion because there was such a bearish sentiment. But I tend to agree with it, especially for longer periods of time. The expansion multiple probably has a much smaller

impact. Well said, wonderfully said, because in the short term, it matters a lot. Like if you look at return decomposition in one year, business fundamentals almost don't even show up on importance because we're looking at overall market sentiment and the stock trading on sentiment on a company-specific level of the multiple, whether it's a sales multiple or an earnings multiple or free cashflow yield, whatever it is. Whereas if you go out, you go further and further along the time horizon spectrum, and it's going to matter less and less and less as you go. And that barometer is going to be filled up by actual growth in corporate earnings and free cash flow per share. So at the end of the day, on the long run, it's a weighing

machine. In the short run, it's a voting machine. And so I just thought that this was interesting that they broke it down in this way. It's simple to understand and speaks to something that I believe quite strongly in. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense, and with them, you can buy all North American ETFs, not just a few select ones, all commission free, so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning

customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Calling all DIY, do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing.

This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and

influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. Now we'll move on to our next segment here. I wanted to do a quick segment on the Dow Jones Industrial because we do talk a lot about the S&P 500 as an index that we follow. And it's still a bit of a head scratcher for me in terms of why the Dow Jones Industrial still has a lot of importance with the financial media. And a lot of people might not be aware of that. So I'll kind of go down a few things here. It's not a big segment, but the Dow Jones Industrial was created by Charles Dow

and his name after him and Edward Jones. Charles Dow was the editor of the Wall Street Journal and the co-founder of Dow Jones and Company, along with Edward Jones, who was a statistician. My God, that was a hard word. That's a tough one. Yeah. And Charles Bergstresser. Charles was more kind of just a co-founder. He wasn't really involved. So that's why you don't hear about him a whole lot. The word industrial is there because at the time it was primarily an industrial index. Nowadays, the industrial component is less and less relevant because there are many other type of businesses in the index. When it was originally launched in 1896,

I believe I just mixed the numbers in my notes here. In 1896, the index included only 12 companies in the industrial sector. Now today, it has 30 names. I find it a bit funny like I mentioned that it's still widely used by financial media because I'll go over a few kind of weird things with the Dow Jones index compared to the S&P 500 for example. First it's so small because 30 companies is just not a great representation of the U.S. stock market. Usually in index, you want to have a larger sample to provide a good overview of how, you know, the market as a whole is performing. 30 companies, I mean, you could have 30 companies in your portfolio, which I find is a bit, you know, to take care of it.

But still, you know, you could manage that in a portfolio. to take care of it, but still, you could manage that in a portfolio. So it is definitely small in terms of an index, in terms of where it's going to skew towards those 30 companies and not be a good representation. The second issue I have, it's a price weighted index, which gives greater weights to company in the index that have a higher stock price, not a higher value, a higher valuation, that doesn't matter. If one stock is $100 per share and the other stock is $150, the $150 stock will have a higher weighting, even if the $100 a share stock has a much larger market cap. So that's... This is the funniest part about the Dow. Yeah. You're like, yeah, it's cool. It sounds great too. It sounds super legit. The Dow Industrial, it just sounds so legit until you realize that it's weighted on share price.

And you're like, oh, maybe that was a good way to do it a long time ago, but we're talking about split after split after split. And yeah, you get a company that has a $1,000 share price or something, and it's a gigantic weighting in the Dow for no real reason because it's not attached to market cap. It's a calculation that just doesn't make sense. Yeah. So, that's why like those are really the two main reasons. I'm gonna speak for you, but we don't use it all that much. And I still find it baffling that it's used so much in the financial media.

It still grabs- It sounds smart, that's why. Yeah, it still grabs headline. And I'll just kind of highlight the second point here with some pretty hilarious examples. Like you don't have to compare for very long to see the quirks of that price weighted index. For example, United Help Group

is more than 10% of the index compared to the S&P 500 where it's less than 2%. Granted, it's still a pretty high weighting for the S&P. Yeah, it's a gigantic company. It's still a big company for the S&P 500. I think it's typically in the top 10, 15, nothing lower than that. But still, that's a big difference in weighting. The other side of this is Apple is less than 3% weighting compared to more than 6% in the S&P 500. And it's the largest position actually in the S&P 500. And the other thing about Apple, Apple has essentially the same weighting as IBM in the Dow Jones, because if you look at their share price, surprise, surprise, it's almost exactly

the same in the dollar amount. Of course, I think Apple's a way better business than IBM. And that just shows how kind of quirky it is, because personally, I mean, maybe IBM will perform better than Apple in the next decade, but I don't know. I'd rather own more Apple than IBM. I don't know about you. I tend to agree. No, you're right. It's a flawed system that makes no sense, but you're right. Financial media headlines love it. Like you just, dude, I remember like, I want to say like COVID crash and I'd have friends be like, did you see the Dow Jones industrial index average dropped 700 points today? I'm like, I have no idea what that means. Yeah.

Like I run a podcast about this stuff and I have no idea what the scale of the Dow losing X number of points is. That's how irrelevant it is to me. I wouldn't even be able to tell you what that means whatsoever. Yeah. I love that you said that because it's so true. What they'll do in the headlines is they'll say the Dow Jones Industrial, not that it's down 3% or whatever. They actually say the points and if you don't have the basic idea of like what the total down industrial is in terms of points, it means nothing, right? If it were 1500 points and it's dropping 700, it's down by half. But if it's 30,700, it's not as impressive. Well, of course. This is the business of sensationalizing a generally pretty boring industry. It's big lethargic businesses that nothing really happens

day to day. But if you can write some sensationalized headline about some gigantic number read across the screen, then now we have a real story to sell, right? No, exactly. Yeah. No, I like that. So, to answer your question, is it still relevant, Simon, Mr. Belanger? Is it still relevant? I don't think so. I think they should just scrap it. That's my personal opinion. I think it's just a waste of people's time. But you know what? I guess it sells. So, they'll keep it. I tend to agree and they will keep it. I was in Barcelona. This was, I want to say 20,

yeah, it was 2018. And in Barcelona, there is a bar called the Dow Jones. And if you go to Barcelona, by the way, one of my favorite cities in the world, Spain's awesome. If you go to Barcelona, there's a bar called the Dow Jones. And if you listen to this podcast, there's a good chance you're going to like this bar. It shows the tickers, but instead of tickers, it's prices of beer and liquor. And they'll have big market crashes to try to stimulate people going to buy drinks. But it's actually real time. So, me and my friends went to go buy Jager bombs and some group of ladies just ordered Jager bombs at the other side of the bar. And when the bill came, we got screwed because it's based on the supply and demand. But then we make up for it by buying some low demand

Heinekens or something that no one's buying. This is one of the most brilliant ideas of a bar. If you go to Barcelona, you got to go to the Dow Jones Bar. It's a good time. I don't know why I haven't talked about it on the podcast. That's a great spot. Sounds pretty good. I'd probably go and visit that. I've been to Spain, but not Barcelona. I've been to Madrid. Okay. Yeah. They're very different experiences, those two cities, and they're both awesome, but Barcelona is spectacular. All right. Let's talk about the next segment called Monitoring Moats. And it's something I've been thinking about a lot, a lot, a lot. And I wanted to pull up

something because it reminded me of Buffett's annual shareholder meeting is AGM for Berkshire in 2021. I remember watching it at home live. They do them on the Saturdays, like how Berkshire is that. Buff Daddy came up with a slide of the top 20 companies by market cap in 1989, and then the top 20 by market cap at the time of March 31st, 2021, when they were doing the latest data from the AGM. And so I wanted to do an update of it on largest 20 by market cap globally today. But it's some interesting takeaways and an open discussion for us. I have nothing really prepared on this. I think that it'll be cool to just think about monitoring Moza after, but I'm going to go through the top 20 by market cap in 1989. The first four companies. Okay, how about this? The first five companies by market cap,

only one of them were from the USA. The four largest by market cap were all Japanese companies. All Japanese banks. All Japanese banks. There are four Japanese banks. And the largest one in the largest company in the world had a market cap of 104 billion, which now you look at that and that's a huge company, but it certainly isn't Apple at what, 2.25 trillion? So just to give you an idea of how much bigger the companies have been and the effects of inflation as well, and a bit up, probably bit up stock market. Okay, so we got four Japanese banks, ExxonMobil, General Electric. So those are the first two American names. And then you got Tokyo Electric from Japan, Toyota Corp, IBM, another US name. And then, dude, six more, one, two, three, four,

five, six, seven more names from Japan, Royal Dutch, Philip Morris, Merck & Co. And so a lot of Japanese stocks. But on the American side, no businesses today that are even close to being in the top 20 by market cap, actually Exxon is now. Okay. So here's something that's funny, right? In 1989, the top 20 by market cap, and when Buffett made these slides, not a single business was still in the top 20 by market cap. Now with the run-up and Exxon doing 70% year-to-date, it has cracked the top 20 by global

market cap. But that is the only business on this list that has remained in the top 20 by market cap. What are your thoughts on that generally? And I didn't realize, I knew Japan would dominate this list, but I didn't realize to this extent. Yeah. Well, I think the timing is interesting because as you were going through the list, I just kind of Googled the Nikkei index, the 225, just to historical how it's done and not surprisingly actually peaked in around the fall of 1989. So, it was a big bubble in the Japanese stock market. Yeah, and it hasn't reached that peak since. So, it's still lower now.

So, I think that kind of explains it a little bit right there. So, that's my first take is it kind of lines up with what has happened with the Japanese market. It kind of lines up with what has happened with the Japanese market. And, you know, I think it's just overall the Japanese economy has kind of matured, you know, a bit sooner than, I guess, the U.S. economy. That's probably the best way to put it. And if you start learning for those who are starting to learn about semiconductors, for example, you'll see that early in those years, Japan was very big in the semiconductor space. They still have a decent amount of input in there, but it's kind of shifted to other countries. So, it definitely lines up with that. I'll just say that. Yeah. Right. Yeah. Very interesting. And yeah, there was definitely a bubble happening.

But the takeaway for me is like geopolitics aside, Japan aside is capitalism is ruthless, man. None of those top 20 made it to Buffett's list. But now here with Exxon having a year, it has cracked the top 20 again. But for the most part, businesses don't remain competitive for multi-decades very often. It's not very common. There's just a few real outliers. And typically, we're talking about critical infrastructure like railroads that kind of endure the test of time. Now, that list today is Apple, Saudi Aramco, Microsoft, Google, Amazon, Berkshire,

Tesla, UnitedHealth, Johnson & Johnson, Visa, Exxon, TSMC, Walmart, NVIDIA, JP Morgan, Tencent, LVMH, Procter & Gamble, Eli Lilly, and MasterCard. Those are the top 20 by market cap today. The 20th MasterCard is at $335 billion, which is more than triple the largest by market cap, the Japanese Industrial Bank of Japan in 1989. So it gives you some interesting parallels here. All right. Now, where I'm going with this is a discussion about monitoring moats. This is why it's really hard to beat the market. Things change, right? Like the only thing that is constant is change just in life, in business, and especially in capitalism, the world changes. And this is why it's important if you do pick stocks like we do, to pick truly great companies

and monitor the metrics and monitor its competitive advantages that actually matter over time. If it's quantifiable, even better. Because things change and competitive advantages are never forever, thinking in longer time periods are really hard for humans generally conceptually. I think humans are very hardwired to think that even if you look at like lifespans that have changed since our parents' lifetimes are completely different. Like it's mind-bending. So maybe over time, we will be like conditioned to think more long-term, but those things don't happen as rapidly as science has changed, right?

And so if you're thinking, you know, will the business truly be durable in five, 10 plus years out, even if you don't have that long of a time horizon, it's a very worthwhile and useful exercise to assume that the market, like no greater fool theory, like Terry Smith says, no one's dumber than us is the way we think because we don't want to assume anything. We don't want to assume anything into the future that we can't project. And so, I just think that this is a useful exercise to realize things change and you don't need to be tinkering with your portfolio all the time. But monitoring the businesses you own, if you're owning businesses long-term like stock pickers do,

you got to be thinking about this. Yeah. Yeah. I think that's a good point. I'll probably just say a caveat here. It's not because the business are not in that top 20 that they haven't necessarily grown a whole lot. So, I'll just kind of point out here Royal Dutch and Merckx & Co. Royal Dutch is currently worth $205 billion and Merckx is worth $278 billion. So, they've actually been pretty great compound. There's just, you know, they've dropped out relatively to the top holdings. Big tech. Exactly. So, I wanted to mention that just so people don't think, well, you know, what's the point of holding good businesses for long periods of time because you have-

Very good counterpoint, Simon. Thank you. That's really smart. Yeah, exactly. Yeah, that's it. So, I just wanted to – I knew Merckx was way up there because of the next segment I'll be doing because I remember seeing that name and having a very high weighting in the S&P 500. I think it's a top 20 name or top 25. So, that's why I kind of just double-checked that while you were talking. Nice. Okay.

Yeah, fair enough. So, where are they? Yeah, there's a Merck. Yeah. I think Merck's is like 25th or something like that. Yeah. It's up there. It's number 30 today. 2079-ish billion in market cap. So, yeah, good point. You're right. It requires that caveat. You know, nothing's black and white white here. So don't hear what I'm not saying there. Some of these could have been excellent compounders. It's just that projecting something is great and huge today that it's going to remain relative like that over time, I think is probably a loser's game as history tells. And just the laws of competitive nature and forces

and incentives that change over time just don't really allow for durability in super, super long time horizons. So yeah, it's not supposed to be scary. It's supposed to be a reminder that things change. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission-free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way.

As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit Questrade.com for details. That is Questrade.com. Calling all DIY do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time.

And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, Blossom Social in the app store and I'll see you there.

We'll move on to the next segment here. I think it's going to be, you know, it's going to be Simone was not impressed with, you know. When are we ever impressed with this topic? Yeah, I'm going to just say out there, I know one of the big proponents of this has been Larry Fink, the CEO of BlackRock. And I'm going to be dunking on him quite a bit in this segment. So be prepared. So it's titled, Are ESG Funds Worth It. So, over the weekend, I was just kind of started looking over some funds that have an ESG tag on them. For those who are not familiar, I mean, you may,

I'm sure you've heard the term before, but ESG just means environmental, social, and governance. So, the goal is to invest in companies that are responsible environmentally, socially, and that are governed properly. There's one interesting, a couple of interesting one I found, but the one I'll focus the most is the iShare ESG Aware MSCI USA ETF, ticker ESGU. So, I'm peeking on your notes here and I'm not going to give it away. I'm not going to give it away. I'm not going to give it away because I don't want to steal your thunder. But this last one you have listed here and the whole things that are inside of it is disgusting. You know how much this rattles me. I'm literally an environmental engineer. I went to school for climate science and this is literally such a joke.

Okay. I won't steal the surprise at the end here yeah and you know also my opinion on the s and the g the social and governance i've always been pretty you know saying wow how it's very difficult to measure and the measurement you know it's difficult to measure on the one hand but also what i may think is social, responsibly social from one company, you may have the opposite view of it, right? So, it's very, it's kind of a value base and you have these companies that are making the call for you. So, that's also why I'm not a fan of it.

This is why I've just never liked ESG as a whole. One, I think most of it's a silly scam. Number two is you have environmental metrics that you can certainly quantify. I used to do it for a living and I wholeheartedly believe many of these large companies need to reduce their carbon footprint. And then you have really qualitative factors. Exactly. And you're trying to blend extremely qualitative factors and something that actually is quantifiable and you end up with a product that serves neither

of them well at all right so it's it's serves the fund managers uh spoiler alert yeah it serves them yeah exactly so i'll just kind of read and a quote from that esgu fund and obviously look at the ticker esgu right so that's some branding right there the iShare ESG aware MSCI USA ETF seeks to track the investment results of an index composed of U.S. companies that have a positive environmental social and governance characteristic as identified by the index provider while exhibiting risk and return characteristics similar to those of the parent company. So that already, I mean, you read that, I'm like, okay, it's a whole lot in my view, a whole lot of nothing, but that's just the way I view that. Now, if you look at the fun facts,

it gets really interesting. So the ESGU, it doesn't state it explicitly in the fun facts but it looks like it's market cap weighted that's the way I can tell the ETF has 313 holdings but it's heavily skewed towards the top a bit like the S&P 500 would be the top holding is Apple which is 6.46 percent and the 20th holding is MasterCard at 0.85 so just kind of shows shows that, you know, those kind of top 30, 40 holdings are definitely carrying most of the index. And just to add to that, the 100th holding is serviced now at 0.29% and it gets like much, much smaller. So you have to keep that in mind in the market cap weighted index is that it's definitely, you know, the top holdings that will tend to carry the index or vice versa. Now, it gets interesting when you start comparing ESGU with the iShares Core S&P 500 ETF.

It's just an S&P 500 index ETF, ticker IVV. But there's other, there's the SPDR, for example, that you could take if you wanted to compare. Both funds have Apple, Microsoft, and Amazon as the top three holdings. In the same order, the allocation is literally like the same. It's off a few basis points. All the stocks in the top 20 of the ESGU. Oh, sorry. Brayden's playing with the documents and it's messed up. Dude, I was just copy and pasting some images and you probably just saw your entire screen. Move up and down. Transform.

Yeah. And for anyone who doesn't know, Simone needs a public apology for how fidgety I am on the dock we look at. Like I am an absolute psycho on this thing and you just sit here and deal with it. And I apologize and the people need to know what you've been suffering now for three years. No, it's not good. Fidgeting with the dock. So what I was going to say is all the stocks in the top 20 for ESGUs are also in the top 20 for the S&P 500 except for three. The three are Coca-Cola, Pepsi, and Merckx & Co which I just talked about that's why I was aware of it. All three of those stocks though are in the top 30 for the S&P 500 fund and the weighting is

extremely close even for those three that are not in the top 20. Now, the kicker in all of this is ESGU as a MER of 0.15%, so 0.15%. And the IVV, the S&P 500 fund, as a fee, a MER of 0.03%, so three basis points. You'll say, okay, the 0.15%15 is not that high but it's still five times higher than the snp 500 fund and in all honestly you're getting an snp 500 fund it's the same fund with a different title exactly and personally i think it's laughable that they branded as esg because exxon and chevron are both in the top 20 for ESGU. And some of the companies that don't necessarily have the best track record in terms of governance and environment are there as well

and socially responsible, of course. And it's the same thing for Canada too. There's the XESG, which is a ticker. You can look it up very easily. And it has just shy of three times the fee of XIC, which tracks the S&P TSX composite. Now the names are extremely familiar or similar for both, but the weightings vary slightly more than the example I just gave, but not how you would think. For example, Enbridge has a weighting that's 100 basis point higher in the

ESG fund. And Suncor is also a bit higher in terms of weighting in the ESG fund. Now, BNS, Bank of Nova Scotia is 170 basis point lower in the ESG fund. First of all, I've never heard anyone call the S&P TSX Composite the Composite, but we'll run with it. I love that. And my thought here is just like, the reason this exists is because there are so many products and like robo advisors that you go on, you know, you go on their sleek little iPhone app, you want to invest on this robo-advisor, and they're marketing to millennials. So, they'll say, slide this beautiful UX slider on how ESG friendly you want to be. And there's nice kickbacks for that because everyone's making more money when there's higher fees. So, that's all good. You get this great experience. You feel good about it.

And all that slider is doing is changing your fee structure because the holdings are duplicated. It's the exact same thing. And it's sad. It really, it's sad and it's pathetic, but we're talking about capitalism earlier. And I love me some capitalism and people find ways to make money. And this love me some capitalism and people find ways to make money. And this is a clear way to gain the system and make some money. Yeah. And look, we hammer a lot on fees and we talk about mutual funds. And obviously, mutual funds will tend to be much higher in terms of fees. But to me, it's just like misleading what they do. And that's what I find so frustrating. And let's be honest, it's just in a lot of cases,

like I'm sure there are some maybe more niche ESG funds where they actually do a whole lot of work and they have like companies that realistically follow that model. I haven't seen any myself, but I'm sure there might be some out there. And I'm not trying to say it's not good to invest in, there. And I'm not trying to say it's not good to invest in, you know, environmentally, socially responsible and good governance company. I think it's great to wanting to do that. But the issue is the fact that they're branding them as that when they are not. I mean, it's so easy. You just compare them. It's the exact same thing, except they charge you higher fees like you just said and the last one here that's it's just something else it's i heard this i think a couple weeks ago it's a vegan etfs the u.s vegan climate etf ticker v e g n it has a merm management expense ratio of 0.60, so 60 basis points.

Now, the top 10 holdings are as follows. Tesla, Nvidia, UnitedHealth, Visa, MasterCard, Adobe, Google, Google, because of dual shares class here, Salesforce, and Broadcom. And the weightings, you know, they're not that far off from a NASDAQ ETF. And a lot of these names are names that you'd find in the NASDAQ. So that's why I find that a bit interesting. Like there is more variance compared to the NASDAQ or the S&P 500 here. But to claim that this is a vegan ETF. What does that even mean?

Yeah, like I don't understand. Like I just, you know, this is a marketing gimmick. That's it. And I mean, look, I eat't understand. Like, I just, you know, this is a marketing gimmick. That's it. And I mean, look, I eat a bit of meat. I eat like I eat a bit of everything. Like I've tried vegan meals that are awesome. I don't, you know, I eat some meat. So I have nothing wrong with that.

But again, this is another marketing gimmick where you can just invest in the QQQ in the power shares and you'll pay. I don't know what the management expense ratio fee is, but I feel like it's probably- Yeah, a couple of basis points. And you'll have most of these names already. And you can't tell me that these names are- And it'll cost you 10 times less in fees. Yeah. And you can't tell me that these names are more vegan than the QQQ. So, this one is,

I'll just, this is just outrageous. The fact that this is even allowed, like how do regulators even allow this? I want to say some swear words, but I won't. I'll keep it friendly. But how would they allow this S and you can complete the, yeah, you can complete the sentence. It rhymes with it. No, it's complete garbage is what it is. It's complete garbage. And I love these segments on the podcast because one, it gets us both heated. And I think that makes for fun content. And two, it just needs, you know, this is why we do the pod, right? Is to call out the garbage, call out the crap. And this is crap. This is total, total crap. the crap. And this is crap. This is total, total crap. And you know what it is? It's insulting to people who are actually vegan for one reason or another, right? Like,

we'll brand this vegan, we'll collect some management fees, we'll get a bunch of AUM, and then we'll just serve them up Google, MasterCard, Visa, NVIDIA, and Broadcom. Maybe like fist pump end of meeting. And then they put on their Patagonia jackets, vest back on and go drink beer at the downtown Manhattan. Like that's exactly how this afternoon went for the people who started this vegan ETF. Yeah, and I want to see how much it's worth in terms of ETF. That's the last thing I want to see how much it's worth in terms of ETF. That's the last thing I wanted to say. I know the ESGU is like 20 billion net asset value, which is-

Yeah. This will be tiny compared to- Yeah. It'll be tiny to that, but still like it just finds, I find it frustrating because a lot of people that probably end up investing in these don't take the time to look at the holdings and just read the statement for the fun and just, yeah, they feel good about it. They don't take the time to look at the holdings and just read the statement for the fun and just they feel good about it. They don't know too much, but I think that also- Or it's behind some fun app that I'm talking about, right? Yeah, exactly. That's the other thing. For a portfolio building app, because that's what these robo-advisors do is they're building

a collection of ETFs based on your preferences. I don't have a problem with those services. I think that most people probably do better than if they're paying 2.5% management fees on a mutual fund. So overall, I mean, they're going to get better performance by owning this on 60 basis points than 2.5% closeted index mutual fund. So somehow the consumer is still getting a better option. But usually it's going to be behind some wall. They're not seeing what the fun facts are. If they saw this, they're not dumb and they're going to see, oh, these are just the largest 10 companies in America in the top 10,

you know, maybe minus Facebook. Actually, Facebook still dropped so much in market cap, it probably doesn't make the top 10 anyway. And probably the last thing I'll say, you know, we do invest. I think I do a hybrid approach where I have some index ETFs and also some individual holdings. But if you do invest in index ETF, whether it's hybrid or fully index ETF, and that's it, make sure you do look at the fund holding, especially if you invest in etfs that are not index etfs look at the very least at the top 10 holdings because that will just looking at that not necessarily even the whole list just those top 10s will give you a really good idea of what the fund is all about and if it's actually you know aligning with what they're telling you in that like kind of one or two liner or not. Right, exactly.

Oh, I love it. I love seeing this and roasting it because it deserves all of our roasts. It deserves the vegan ETF. I hope they don't get a single dollar of AUM from this talk. What is the AUM? What is – or the NAV right now? Yeah. I think it might be too small. Yeah, I can't find it.

I found it. Oh yeah, it's tiny. Yeah, the marketing hasn't been going well for that one. 62 million net asset. Yeah. Yeah, the fact that they even gathered that though. So, on Stratosphere, you can type in ETFs now. So, it's too small that we don't even actually get the AUM on like these really small funds. We don't have great data on them, but it does give you the industry breakdown and the largest is technology at 35%. I haven't looked at the whole holdings, but I do hope that Beyond Meat is. Can you imagine a vegan etf that doesn't have beyond meat i bet you they don't because i'm willing to to bet they don't because beyond meat is now

less than 1 billion in market cap it's had complete destruction so it's really hard for these etfs to own it we can revisit that another time. But yeah, I mean, it would be ironic. Industrials makes up 9% of the portfolio. Industrials. So, like, what, you know, those two things don't really go along together. I'm an industrial vegan. I hope they wind that fun down because of a lack of fun. I'll just say that. Yeah. All right. That does it for this episode. Thanks for listening, folks. We really appreciate all of the support, the listenership, and all the nice kind messages we get. And we appreciate your support on the Patreon page, joinTCI.com. There's joinTCI.com there's join tci.com you get our monthly portfolio updates it's somewhat relatively early in the month so our portfolio updates were released just a few days ago on the patreon and

that's just a additional way for me and simone to provide more value and more context because when we talk about all these stocks and money oh we're you know we're sounding pretty good we're sounding pretty sales pitchy on this stock which is is obviously not our intention. We don't shill any particular securities or funds or anything, probably the opposite. But it's nice to have that context of like, okay, but do they actually own it? And so that's on the join tci.com. We'll see you in a few days. This podcast comes out on Mondays and Thursdays. We have some great content, not only for the end of the year, we're going to be going into our year in review and our bold predictions for next year. They're always fun episodes and Simon has a crystal ball usually. So usually he crushes it

and we'll see how we did on the year in review. Cause I always forget which silly statements I made one year ago and we'll have to revisit those very shortly. So keep tuning into the show through the holidays. We'll see you in a few days. Take care. Bye-bye. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.