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ESG Investment Returns Starting to Outperform Other Mutual Funds, ETFs

S&P Global Platts

Energy: What to Watch in 2019

S&P Global Ratings

S&P Global Ratings' Global Outlook 2019

S&P Global Ratings

Next Debt Crisis: Will Liquidity Hold?

S&P Global Platts

Turning Tides: The Future of Fuel Oil After IMO 2020


ESG Investment Returns Starting to Outperform Other Mutual Funds, ETFs

[ESG] can be a pretty wide definition. If focusing on one of these [categories], are we getting the returns that the clients want?

Reik Read, Asset Management Director, Baird Equity

Investors' growing appetite for sustainable investment vehicles is paying off, even as lingering doubts about the strategies persist for regulators and some asset managers.

Since their introduction more than a decade ago, environmental, social and governance-focused investment products have now begun recording returns on par with or better than funds built purely for risk-weighted performance, a trend that runs counter to the notion that taking ESG into account means leaving money on the table.

Those performance-tied concerns were underscored by the U.S. Department of Labor in April when the agency warned investment advisers working on certain retirement plans that they "must not too readily" place ESG factors above economic returns, given their obligations to act in their clients' best interests. As a result, certain asset managers have grown worried that by creating ESG-focused investment strategies, they could be setting themselves on a collision course with regulators.

First designed for individual investors looking to craft portfolios around their personal beliefs, sustainable investing has blossomed into a $22.8 trillion global industry with 84% of asset owners around the world currently weighing or already pursuing sustainable investments, according to a recent report from the Morgan Stanley Institute for Sustainable Investing and Morgan Stanley Investment Management Inc.

Returns from ESG-focused exchange-traded funds and mutual funds have also swelled, overtaking broader funds' median returns.



Energy: What to Watch in 2019

Highlights

S&P Global Platts Analytics Issues Two Special Reports

Pricing across the global energy markets will face headwinds in 2019, with a weaker and more uncertain macroeconomic framework deflating price formation in general, according to two special reports just issued by S&P Global Platts Analytics. Such headwinds will require the industry and portfolio managers to take a big-picture approach.

See the Executive Summary of the S&P Global Platts Analytics special report 2018 Review and 2019 here. Access the full S&P Global Platts Analytics Top Factors to Look Out For in 2019 for Energy here.

"One of the key lessons learned in 2018, painfully by some, is that market sentiment can shift violently without much change in fundamentals, requiring a steady, holistic perspective," said Chris Midgley, global head of analytics, S&P Global Platts. "It is clear that this volatility will remain a feature across the energy markets in 2019, particularly as IMO 2020 nears."

Particularly blustery headwinds are in store for markets where prices finished 2018 at elevated levels, and well above costs, such as North American natural gas and global coal. However, if the supply side can adjust to the reality of slowing demand growth, energy prices can find support. For natural gas liquids (NGLs), the ongoing logistical constraints at the US Gulf Coast are likely to manifest on continued price volatility, particularly for ethane and liquid petroleum gas (LPG), over the next year despite strong global demand.

LPG, such as propane and butane and used in transportation fuel, refrigeration, heating and cooking, is rapidly facing US export capacity constraints, especially along the US Gulf Coast. For LPG feedstock propylene, there is clear potential for high volatility globally over the next 12-18 months.

Analysts at S&P Global Platts see weakening prices of Henry Hub natural gas. The slowdown in US demand growth will exceed that of supply. But if winter temperatures prove to be colder than normal, near-term prices will need to move higher to bring on enough supply to replenish depleted storage levels.

For global liquefied natural gas (LNG), it will be end-user-backed LNG demand that faces particular struggle to cope with the speed and force of new supply entering the market in 2019. Non price-responsive demand in Asia will be easily met and JKM spot physical prices (reflecting LNG as delivered into Japan, Korea and China) will sag next year.

Access the full S&P Global Platts Analytics Top Factors to Look Out For in 2019 for Energy here. Among the 22 key take-away themes:

  • NGL supply growth will strain the North American energy system
  • Saudi Arabia will need to be nimble to balance 2019 oil supply
  • US oil supply limited by pipelines
  • Oil demand slowing: trade war, industrial slump
  • 2019 LNG supply additions largest since the Qatari mega-trains
  • US gas supply growth to exceed demand growth even with LNG exports
  • Global solar growth slowing
  • Shipping disruption looming - IMO 2020
  • New Russian gas pipeline advantage over Ukraine
  • US coal demand to decline again in 2019
  • Growth in new refineries and complex capacity likely to weigh on refinery margins especially in Asia

Year 2019 will certainly be one of transition for crude and refined oil products as it will lead into 2020 when roughly three million barrels per day of high-sulfur fuel oil must be “destroyed” (including enhanced usage of HSFO in power generation) due to the International Marine Organization (IMO) mandate of eco-friendly shipping fuels in use at sea. A similar amount of middle distillate/low sulfur fuel must be created (by refinery changes and by running more crude oil. The increase in refinery capacity between now and 2020 is large, but mostly needed to cover normal demand growth. Expect prices of light sweet crudes to be bid up in 4Q19.



S&P Global Ratings' Global Outlook 2019

 A deep dive into S&P Global Ratings’ insights on the credit outlook for 2019 and what are the risks and vulnerabilities to look out for.

Access all the Global Outlook
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Next Debt Crisis: Will Liquidity Hold?

Highlights

Crisis. The next global downturn is unlikely to be as severe as 2008-2009 given that contagion risk from higher government and Chinese corporate leverage is limited (see section 1).

Transmission. We’re watching market movements on U.S. speculative-grade (e.g. “cov-lite”) and Chinese corporates (section 2). Global capital flows could amplify investor reaction in these segments.

Ratings. Notwithstanding a low interest rate environment, higher leverage has seen issuer ratings trend down globally over the past decade (see sections 3, 4 and 5).

Mar. 12 2019 — Will the next financial crisis be as bad as 2008-2009? Global debt is certainly higher and in many cases riskier than a decade ago. Nonetheless, the likelihood of a widespread investor exodus is contained, in S&P Global Ratings’ view. The increased debt is largely driven by advanced-economy sovereign borrowing and domestic-funded Chinese companies, thus mitigating contagion risk.

That’s not to say there is no vulnerability. A perfect storm of realized risks across geographies and asset classes could trigger a systemically damaging downturn. This downside scenario reflects an increased reliance on global capital flows and functioning secondary market liquidity.

It also reflects bottom-up risks, given that many speculative-grade corporate borrowers have obtained financing on reasonably good terms for much of the past decade. In looking at 11,947 corporates, we find the proportion of companies having aggressive or highly leveraged financial risk has risen slightly, to 61%. While defaults in recent years have been low, this could change.

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Turning Tides: The Future of Fuel Oil After IMO 2020

This report provides a thorough introduction to the IMO's sulfur cap on marine fuel, its impact on markets and what to expect from the new regulatory framework. Aiming to provide market-leading insight and analysis, S&P Global Platts outlines the regulation's impact on refiners and shipowners, analyzes how markets will adapt, and offers birds-eye view on how it could affect the environment.

The IMO’s lower sulfur cap is set to take away the bulk of marine fuel oil demand from the start of next year. Most shipowners and operators will switch to burning new low-sulfur bunker blends, meaning an almost overnight shift of 3 million b/d of demand.

The change poses a tough challenge to fuel oil producers, and prices are  expected to drop dramatically towards the end of 2019. Ships fitted with scrubbers to clean their emissions on board are set to benefit from this drop in their fuel bills, but only a small fraction of the global fleet are expected to invest in the systems by 2020.

LNG producers can expect to see some new demand for their product as an alternative marine fuel. But the IMO’s greenhouse gas strategy may hold back interest in LNG bunkering beyond the 2020s.

The global refining industry is investing in new units aimed at reducing fuel oil output and maximizing middle distillate production. Russian fuel oil exports in particular have fallen dramatically over the past two years.

But new sources of fuel oil demand can be expected to emerge in the coming years, partly offsetting the decline in marine demand. Saudi Arabia has already increased fuel oil consumption for power generation and its water desalinization plants, and Bangladesh is expected to become another key consumer.

2020 will not be the end of the road for fuel oil. A century after its first move to widespread adoption in shipping, fuel oil still has a significant role to play in the oil industry.

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