Three ESG stock picks from veteran money manager Francois Bourdon – The Globe and Mail

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It took a global pandemic and a stock market rout (and subsequent rally) for many investors to finally turn their attention to the benefits of responsible investing – and François Bourdon believes it’s a trend that isn’t going away.

“Like private investment was the trend in the last decade, ESG [environmental, social and governance] investing will be the topic of the future,” says Mr. Bourdon, the former global chief investment officer at Fiera Capital Corp., and now managing partner at ESG research firm Sustainable Market Strategies. The Montreal-based company in the process of registering as a portfolio management company that will offer a long-short strategy for ESG investing.

Mr. Bourdon joined the firm in December, sold on the merits of focusing on investments in companies that pay attention to their impact on ESG issues.

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Instead of looking for economic growth, which is now skewed by massive government stimulus amid the pandemic, he believes investors will be paying closer attention to ESG factors.

“It’s a renewed form of capitalism that’s taking shape,” Mr. Bourdon says. “People that have a macro approach to investing … will have to look at things a little differently.”

It’s not just to feel better about where they put their money, either: Mr. Bourdon believes investors continue to gravitate toward ESG investing amid a growing body of research showing many of these investments outperform their peers in bear markets, including during the downturn last spring.

His firm is expected to launch its fund by the summer with a focus on a dozen ESG themes. Below are three of his picks from the company’s current model portfolio. Performance figures shown are total returns (change in share price plus dividends) from Morningstar as of Jan. 13.

Volkswagen AG (VWAGY-OTC)

Market cap: US$92-billion

One-year return: minus 5 per cent

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The name Volkswagen may seem like an odd ESG choice given the highly public emissions-cheating scandal revealed in the fall of 2015. However, Mr. Bourdon says the company has “significantly improved” its governance structure since then and is moving heavily into the electric vehicle (EV) market. VW has said it plans for EVs to account for between 20 per cent and 25 per cent of its vehicle sales and has committed to being carbon neutral on its balance sheet – including vehicles, plants and processes – by 2050.

“The company is doing the right things,” Mr. Bourdon says. “And, from an investment standpoint, it’s making money and has a positive return on equity and forward growth.”

He says the valuation is reasonable at 18 times forward earnings – and a lot cheaper than Tesla Inc., at a whopping 1,600 times forward earnings. And while the price of VW’s stock, which trades as an American depositary receipt (ADR) in the over-the-counter market, has dropped 5 per cent over the past year, it’s up about 8 per cent in the past three months and Mr. Bourdon believes it’s a good long-term investment.

“We think Volkswagen will be a winner in the electric vehicle race,” he says, in part because the company’s vehicles appeal to more mainstream consumers than Tesla, for example. “I think they will reap the benefits of being a good car builder.”

Archer Daniels Midland Co. (ADM-NYSE)

Market cap: US$29.7-billion

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One-year return: 20 per cent

The U.S.-based multinational food processing and commodities trading company, known as ADM, is another favourite of Mr. Bourdon’s.

He cites employee review site Glassdoor, which gives the Chicago-based company’s chief executive officer an 88-per-cent approval rating, with more than 80 per cent of reviews saying the employee would recommend working at the company to a friend.

He says the company’s products (processing of oilseeds, corn, wheat and other agriculture commodities) also help feed the world, with a focus on sustainability, which also makes it a good bet.

“We think they will keep benefiting from both aspects from an ESG standpoint,” he says.

ADM has a “decent return on equity” and is trading at a reasonable 18 times future earnings.

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“It’s not a chase for the high flyer – this is trading a little bit under the market … with high growth potential.”

Microsoft Corp. (MSFT-Nasdaq)

Market cap: US$1.6-trillion

One-year return: 34 per cent

Microsoft is among the few technology companies not making headlines today, which is a good thing for investors attracted to good governance, Mr. Bourdon says.

While other technology stocks such as Facebook Inc. have been caught in regulatory crosshairs on various issues in recent months, such as data privacy and antitrust violations, Microsoft is a big, boring company that, despite its size, flies largely under the radar.

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“As people focus on the other guys, Microsoft will have an opportunity to gain market share,” he says.

It’s also a technology leader that has seen traction during the pandemic with its products such as the Azure cloud platform and its Office products.

Although the company is relatively expensive, trading at about 35 times future earnings, he says it has a high return on equity.

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