Find the Stocks that Offer Innovation, Not Just Growth
Norway’s Government Pension Fund Global, the world’s largest sovereign wealth fund, with $860 billion under management, has missed out on $1.9 billion in additional profits as a result of its decision to divest all of its tobacco holdings in 2010. The story that reported this fact, which ran in the Financial Times , goes on to suggest that fund managers should reconsider their investments in tobacco companies, as the sector is generating impressive returns, well above many key performance benchmarks.
This story implicitly highlights one of the most prominent features of capital markets — and one that is largely responsible for why growth is now anemic worldwide — that capital chases only risk-adjusted returns, with no interest in the impact of the resulting investments on driving sufficient economic growth. The implications for investors are profound if their portfolios play a large role in the poor growth conditions that exist today.