Third Quarter 2021 Investment Commentary

In our base case short to medium term outlook, we expect the economic and earnings growth cycle, interest rates, and government policy to remain broadly supportive of equities and other risk-asset markets. However, our five-year tactical analysis suggests we should be prepared for an extended period of lower absolute investment returns.



ESG in Action

August 2021

The ESG managers we have selected each have distinctive approaches to sustainable investing but all aim for strong financial returns while simultaneously seeking positive environmental, social, and corporate governance (ESG) outcomes. After researching this space for a number of years and speaking with numerous managers, we are firmly convinced that consistent, thoughtful corporate engagement plays a defining role in the outcomes ESG investors are able to achieve.

In this piece, we spotlight examples of engagement, sourced from managers we follow and invest with, that focus on efforts to improve corporate diversity, pay equity, and inclusion. These issues typically fall into the S, or Social, category of ESG factors or into the G, or Governance, category if they pertain to diversity and inclusion on corporate boards. All the managers we highlight have long histories of engagement around fair employment issues.


Beginning in the summer of 2020, Calvert began reaching out to companies among the largest 100 holdings in the Calvert U.S. Large Cap Responsible Index fund (CISIX) that were not already publishing their EEO-1 reports. Companies submit an annual EEO-1 report (privately) to the U.S. Equal Employment Opportunity Commission that details the gender and racial diversity of their workforces by job classification, but very few companies disclose this publicly. Only 18 of the top 100 index companies had been publishing this data. Obtaining this information is an important first step to pushing for a more inclusive corporate world. It will allow engagement specialists like Calvert to judge and then identify where to focus their shareholder advocacy to make the biggest impact. One of the companies Calvert began engaging with was Charter Communications. At first, Charter responded by simply directing the Calvert team to their corporate sustainability report (which did not provide the necessary level of detail). Calvert subsequently filed a shareholder resolution and is pursuing greater dialogue with the company. But Calvert and the other shareholders and organizations working alongside them have already had success with other index companies. By January 2021, 32 additional companies in the top 100 agreed to publish their EEO-1 reports. Half of the top 100 are now disclosing this data.


Pax, advisor to the Pax U.S. Sustainable Economy fund (PWGIX) shared an example of engagement that also highlights how at-times the final resort is to sell the security. With Oracle, a company lacking pay equity policies and disclosure, Pax first tried direct dialogue. They were unsuccessful in establishing a conversation. The fact that Oracle wouldn’t respond should concern any shareholder. Pax eventually filed a shareholder proposal on the topic, something they view as a last resort. They filed four times, the last one of which received 38% support. Excluding founder Larry Ellison’s large block of shares, the majority of independent shareholders supported Pax’s proposal. But after a lack of progress, Pax sold the holding.

Pax says this is definitely the exception these days. Most companies are willing to engage and work with them. For example, several years ago, Pax identified T-Mobile, a holding in the fund, as a laggard in terms of its board’s gender diversity. The company also didn’t have any public disclosure around board diversity. Previously, there was only one woman on the board; Pax will vote against any board slate that does not include at least three women. Pax voted against the board nominees but followed up by engaging with the company. After some discussion with investor relations, T-Mobile’s internal policies on board diversity seemed satisfactory. But after a couple of years, Pax saw no additional disclosure. They escalated their efforts by filing a shareholder proposal requesting that T-Mobile adopt a board-diversity policy that ensured women and minorities would be included in board member candidate pools. T-Mobile responded positively by amending their governance documents and Pax withdrew their proposal. T-Mobile recently announced their second female director. This is one of Pax’s long-term objectives: to increase diversity across the fund’s holdings.


The RBC Emerging Markets Equity (REEIX) team has prioritized workforce diversity as a key issue for them as they engage with current and prospective fund holdings. One example they shared in our recent interaction was Mondi, a South African paper and packaging group that fits the fund’s Green Infrastructure portfolio theme. RBC previously engaged with the company on board and workplace diversity, specifically to increase the number of women in each group. They track and rate each engagement effort across the portfolio and Mondi’s response is rated as positive. It includes an explicit focus on diversity by the CEO. One effort Mondi has undertaken is to analyze each of its plants and set one of their diverse plants (in Austria, with 20 nationalities and a female managing director) as an example to improve other plants.

—Litman Gregory Investment Team


Note: For discretionary use by investment professionals. This document is provided by Litman Gregory Asset Management, LLC (“Litman Gregory”) for informational purposes only and no statement is to be construed as a solicitation or offer to buy or sell a security, or the rendering of personalized investment advice. There is no agreement or understanding that Litman Gregory will provide individual advice to any investor or advisory client in receipt of this document. Certain information constitutes “forward-looking statements” and due to various risks and uncertainties actual events or results may differ from those projected. Some information contained in this report may be derived from sources that we believe to be reliable; however, we do not guarantee the accuracy or timeliness of such information. Past performance may not be indicative of future results and there can be no assurance the views and opinions expressed herein will come to pass. Investing involves risk, including the potential loss of principal. Any reference to a market index is included for illustrative purposes only, as an index is not a security in which an investment can be made. Indexes are unmanaged vehicles that do not account for the deduction of fees and expenses generally associated with investable products. Returns shown for individual securities holdings are calculated on a gross and unrealized basis and do not account for the deduction of LGAM’s management fees, which would adversely impact net results. A list of all recommendations made by LGAM within the immediately preceding one year is available upon request at no charge. For additional information about Litman Gregory, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website ( and may otherwise be made available upon written request.

Second Quarter 2021 Investment Commentary

Global stock markets continued to surge in the second quarter. In our assessment of the macroeconomic backdrop and outlook, we continue to expect a strong global economic recovery over at least the next 12 months. In this quarterly commentary, our Chief Investment Officer, Jeremy DeGroot, reviews the current reasoning for our portfolio positioning, outlook on inflation, and forward-looking scenario analysis on the broader economy and markets.