Letter to Shareholders
A talented and productive workforce is critical to maximizing corporate profitability in a globally competitive market. Companies focused on attracting, training and retaining the highest-quality talent become stronger competitors. However, this focus on labor has become more challenging as workers feel a growing pinch from years of inflation eating away at their real purchasing power.
After years of above-trend inflation, high prices are presenting a significant headwind, especially in the case of non-discretionary expenses like housing, food, interest, and health care, which are beginning to impact spending on discretionary purchases, such as travel.
Workers’ concerns about their income levels have increased dramatically, with the recent University of Michigan survey on U.S. Consumer Real Income Expectations near its lowest point in the last five decades. Higher inflation means companies must offer attractive compensation to compete for and retain talent or risk losing highly valuable employees.
As the Federal Reserve seeks to combat high inflation, businesses face higher labor costs and limited ways of passing along higher pricing. These challenges present headwinds for firms aiming to maintain or grow their profit margins and attract investors.
Those companies that are most proactive, looking out for the future of their workers, and providing career opportunities, training and competitive compensation, are likely better positioned to weather the bumpy road ahead. This is an important element we consider in identifying the ability to augment long-term value creation.
American Century’s Sustainable Research Team has identified five themes and subthemes to assess long-term sustainability-related risks and opportunities:
Human/labor rights, wage structures and upward mobility.
Recycling, production, food systems, and product life extension.
Alternative energy, biodiversity, water, climate mitigation, and climate technologies.
Innovative treatments, improved medical equipment and services, access to medicine and health care services, and solutions to reduce health care costs.
Environmental, social and governance (ESG) aspects of digitalization, financial technology, ecommerce, connectivity, and automation.
Importantly, these themes are not siloed—they impact each other. This framework helps us to identify these interrelationships and take a holistic view of sustainability.
We continue to be encouraged by the sustainability commitments many companies are making across our five themes, and we highlight several in this report. While sustainable investing and investors’ expectations evolve, our core beliefs remain:
Companies that excel at managing business fundamentals and material sustainability issues will likely outperform their peers over time.
Environmental, social and governance (ESG) analysis complements traditional financial analysis and results in a more comprehensive understanding of risks and opportunities.
Integration, rather than exclusionary screening, improves diversification and produces a more robust opportunity set.
Authors
Senior Portfolio Manager
Portfolio Manager
Portfolio Manager
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Learn more about leaders in the sustainability space, our proxy voting policies and the Sustainable Research team.
Diversification does not assure a profit nor does it protect against loss of principal.
The portfolio managers use a variety of analytical research tools and techniques to help them make decisions about buying or holding issuers that meet their investment criteria and selling issuers that do not. In addition to fundamental financial metrics, the portfolio managers may also consider environmental, social, and/or governance (ESG) data to evaluate an issuer's sustainability characteristics. However, the portfolio managers may not consider ESG data with respect to every investment decision and, even when such data is considered, they may conclude that other attributes of an investment outweigh sustainability-related considerations when making decisions. Sustainability-related characteristics may or may not impact the performance of an issuer or the strategy, and the strategy may perform differently if it did not consider ESG data. Issuers with strong sustainability-related characteristics may or may not outperform issuers with weak sustainability-related characteristics. ESG data used by the portfolio managers often lacks standardization, consistency, and transparency, and may not be available, complete, or accurate. Not all American Century investment strategies incorporate ESG data into the process.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.