Justin is an active trader with more than 20-years of industry experience. He has worked at big banks and hedge funds including Citigroup, D. E. Shaw and Millennium Capital Management.
Long gone are the days when investing in a Fairtrade-orientated firm meant you had to sacrifice some part of the financial return for the emotional satisfaction that comes with supporting a worthy cause. Fairtrade stocks are nowadays big business, and they are proving good for the bottom line as well as the planet.
This might not be so surprising considering basic Fairtrade philosophies and modern business management protocols, to some extent, overlap. Building positive relationships with stakeholders and suppliers is a cornerstone of many successful businesses. Factor in that supply chains have to be sustainable in the long-term, and the focus that Fairtrade businesses place on the environment makes sense. There is also the issue of rewarding staff by paying them wages that lead to acceptable living standards.
Firms in developed countries no longer need to exploit communities in developing ones to maximise profits. With information being shared so freely on the internet, there is a greater degree of transparency, which keeps firms honest. Some operators have spun this around and now proactively promote their Fairtrade credentials as this develops their brand and builds a loyal customer base.
The AskTraders analysts have picked out the firms committed to Fairtrade principles and provided an easy-to-follow guide on how to invest in them using a trusted broker.
Fairtrade stocks aren’t that well defined yet. The charitable organisation Fairtrade.org, founded in 1992, has set up a system of certification that aims to ensure a set of standards are met in the production and supply of a product or ingredient. According to the protocols of Fairtrade, farmers and workers’ rights need to be protected, and safer working conditions are accompanied by fairer pay. For shoppers, it means high quality, ethically produced products.
The sector is still maturing, and other organisations and firms have adopted and developed themes such as ESG (Ethical, Social and Corporate Governance) and Impact Investing. As with the tech-stock sector, the underlying theme for investors is that parts of the economy that are still evolving and too busy even to define themselves can sometimes provide the best returns. Catching those who are picking up on Fairtrade, ESG and impact investing momentum is the key.
UK grocer Sainsbury’s has been a long-term flag carrier for the Fairtrade movement. It started selling Fairtrade-licensed products in 1994 and is now the world's largest retailer of Fairtrade products.
Private equity funds have been circling the UK supermarket sector for some time. The recent move by Clayton, Dubilier & Rice (CD&R) for Morrison’s is a clear demonstration that buy-out funds see the sector as being undervalued. With Sainsbury’s currently reporting a dividend yield of 3.926% and a P/E ratio of 14.0, it’s clear to see why.
Since signing up to be Fairtrade certified in 2008, Tate & Lyle Sugars has supported many farmers’ organisations. Today, it sources Fairtrade sugar from thousands of small-scale cane farmers in 14 different groups in four countries.
The dividend yield of 4.07% and P/E ratio of 12.04 also make buying into the stock an attractive proposition. The Tate & Lyle P/E ratio is lower than the average of the FTSE 100 (13.06), which, in turn, is well below the ratios of other major global indices.
Marks & Spencer started selling Fairtrade products in 2006. Its commitment to income diversification initiatives, climate adaptation projects and leadership programmes has also seen it set up its own in-house programme, the Global Community Programme.
The firm’s share price has, for some years, been in free-fall, but at current price levels, the firm offers an impressive dividend yield of 4.23%. Recent initiatives designed to turn the retailer’s fortunes around include hooking up with online retailer Ocado. The food division of M&S includes Fairtrade products and is certainly popular. Efforts to change the business model and expand the customer base could mean that the share price is bottoming out.
American timber firm Weyerhaeuser plays an important role in making the construction industry more sustainable. It has planted more than 1 billion trees over the last 10 years, and that long-term planning is good for the environment but could also be about to convert into returns to investors.
Prices of lumber have sky-rocketed since the COVID pandemic hit – between January and May 2021, they were up by more than 150%. Supply constraints played a part due to mills closing down to protect workers, but the shift in demand appears to be a long-term trend. Consumers are reassessing lifestyles and work patterns more, and more are looking to upgrade their homes or even build new ones. This means that those trees Weyerhaeuser planted over a period of years have dramatically increased in value without the company really having to do anything.
The firm’s P/E ratio of 30.2 is in line with the market average and doesn’t completely factor in the potential for recent lumber price hikes being a long-term phenomenon.
Online retailer Ocado offers an opportunity for investors to tap into the tech sector and Fairtrade products at the same time. The firm’s share price has been building momentum over a period of years. It surged from £2.58 in October 2017 to £27.07 in September 2020 – an 856% return to investors.
The firm stocks some of the most instantly recognisable Fairtrade brands including, Cadbury’s, Ben & Jerry’s, Green & Black’s, Clipper and it even stocks Fairtrade wine.
Brookfield Renewable might not be selling Fairtrade branded items to its customers, but the firm’s eco-credentials are well renowned. If you’re looking for an energy stock that is reforming a once toxic sector, then BEP deserves to be considered. More importantly, from an investment perspective, the BEP share price is currently trading at levels that mark it in relative terms as undervalued.
The renewable energy producer’s share price posted eye-watering returns in the second half of 2020 – increasing in value by more than 75% between March and November. It has since pulled back to sub-$40. The firm’s plans to invest $100tn over the next three decades has put it at the centre of the green-energy sector, which has moved from niche to mainstream and rewarded investors along the way. Long-term prospects are also enhanced by the firm’s focus on employee wellbeing, health & safety, community engagement, transparency, philanthropy and ethical governance.
American multinational food producer Mondelez International has a share price that continues to snowball year after year. The share price dips of 2012, 2019 and 2020 offered opportunities for investors looking to catch a ride on a global operator with an eye on Fairtrade principles.
Since the lows of March 2020, the Mondelez share price has built considerable momentum and posted a +40% gain. Not bad for a firm that includes Fairtrade-friendly Cadbury’s as one of its most recognisable brands.
There is some volatility built into the stock price, so patience can be a virtue. But get in at the right time and price level, and the strong momentum associated with the stock could generate a worthwhile return.
One stock that has been subject to increased buying pressure is Nestlé. The multinational food and beverages manufacturer has a market capitalisation of CHF 334bn so offers a degree of security to investors. It’s share price performance in the first half of 2021 has been of the sort usually associated with booming small-caps.
Between February and June 2020, the Nestlé share price rose by more than 22%, not a bad return for a firm, which also offers dividend investors a yield of 2.36%.
Nestlé has been a long-term supporter of Fairtrade initiatives, and in 2015, Nestlé UK & Ireland achieved its objective of using only cocoa from sustainable sources. The firm was the first major confectionery manufacturer in the UK & Ireland to accomplish this. While some products such as KitKat have moved away from sourcing Fairtrade ingredients, the firm still continues to operate programs such as the Nestlé Cocoa Plan, which works along similar lines.
The share price of United Natural Foods was already in the doldrums before Covid hit – between July and December 2018, the firm saw its valuation tumble by more than 76%.
Since March 2020, the stock has bottomed out and shown significant strength, but there is still room for upwards movement, with the all-time high of $82.51 some way off. Momentum is building and the UNF stock is currently trading with a modest P/E ratio of 27.47.
As one of the largest wholesalers of organic foods, UNF sits in a Fairtrade sweet spot. In some markets, +30% of bananas sold are registered as Fairtrade, and fruit and vegetables have long been an entry point for consumers who go on to expand their Fairtrade buying patterns. The firm also invests in a range of ethical and philanthropic initiatives.
Investors in Fairtrade stocks are typically driven by two incentives, and right now, both are aligning to make pulling the trigger on a ‘buy’ worth considering.
The first incentive is the need to address societal imbalances. The residents of smaller and developing countries have long found themselves powerless in negotiations with larger corporate partners. Fairtrade accreditation is a way to incentivise the bigger parties to share more of the proceeds of the relationship with the ‘little guy’.
While a lot of progress has been made, the COVID pandemic has left many businesses considering new business models, leaving many small farmers on the bread line. This could be a seminal moment in terms of locking in the gains made, but also reconfirming to big corporations that Fairtrade policies tick a very important box with their customers and investors.
The second reason to invest in Fairtrade stocks is that recent moves in asset prices point to a groundswell in investor support. That means returns on capital. For many, profit and loss have been a secondary influence on investment decisions, but an increasing number of buyers are coming into the market based on the investments being a good bet.
In the space of 15 months, the iShares MSCI World ESG Screened UCITS ETF has increased in value by 65%. The price chart for the index, which tracks companies with high ESG rankings, shows an impressive total return but also notes the limited volatility. Slow and steady but impressive returns are investor nirvana. Throw in the ‘feel good’ factor as well, and it’s clear to see why Fairtrade investing is taking off.
Some die-hard purists may have to hold their noses while they count their profits. The thought that ethical schemes are seen as cash-cows by money-only orientated investors is, however, a positive move. The influx of investment in the sector will ultimately put Fairtrade firms in a better position to achieve their long-term goals.
The Fairtrade, ESG, ethical investing and impact investing sector is a fluid space. Firms are increasingly giving more significance to CSR policies, but as all the acronyms are driven by consumer and investor sentiment, it’s hard to know where the journey will head. One risk is that a firm that is seen as a sure bet in terms of Fairtrade investing falls out of the programme. This could be because the programme changes, or in the case of Nestlé and KitKat because the firm takes an executive decision.
Such a situation creates two issues. The first is that the investment no longer meets the ethical objectives, and the second is that it might miss out on the share price momentum building in the sector. Fairtrade investments can be long-term in nature, but some degree of monitoring is required.
While Fairtrade stocks have been revolutionising investment decisions, online brokers have been equally hard at work transforming the way people can get exposure to the sector. Online brokers offer a user-friendly way to put on trades and monitor positions. The onboarding process can be completed online using a desktop or hand-held device, and the whole process can take a matter of minutes to complete.
There are some common-sense guidelines to follow, which will help you steer clear of scammers, and this range of hints and tips from experienced traders will lay out the basics. The primary aim is to ensure your funds are secure. If you pick a rogue broker, your investment won’t be going towards the new projects the firm is embarking on but into the pockets of criminals instead. For that reason, it’s vital only to use brokers who are licensed by a Tier-1 regulatory authority, such as one of those listed below.
There are a range of ETF and fund style products that offer exposure to a pool of different firms. However, some firms outperform the peer group over the long term, and some have a more passionate approach to Fairtrade principles. Picking single stocks can therefore result in a portfolio that is a better natural fit for a particular investor.
Fairtrade credentials can be screened by visiting the Fairtrade.org site for news and analysis of the sector. This site carries updates on the degree to which firms are behind their projects and flags up those that appear to be trying to catch a ride on the ethical bus without really buying into the project. It’s also possible to investigate each firm’s approach to ethical issues by digging into their Corporate Social Responsibility (CSR) statement.
Investors looking to make the most out of the business side of their investment will find a lot of free research online. The broker sites are also a good source of material, and signing up for a demo account takes seconds to do and allows users to tap into the research and analysis sections of broker platforms.
The former studies historical price data to look for clues as to which way price will head. Indicators such as price data, moving averages, and trading volumes can all offer a pointer on future moves. They can also flag up short term price dips and spikes and therefore help investors optimise their trade entry and exit points.
Fundamental analysis looks into the core basics of a firm. Capital expenditure, dividend yields, trading margins and balance sheet reports can all shed light on a firm’s prospects. As you’re putting hard-earned cash into the positions, checking over the core business metrics is strongly recommended.
As mentioned earlier, but worth repeating, is the fact that the most important filter to consider when choosing a broker is ensuring it is regulated by a highly regarded authority. The terms of the broker’s license will differ slightly from country to country but will include a range of client care protocols. They will invariably have to hold enough cash to be viable, ensure client funds are held in segregated accounts and be subject to independent audits. These rubber stamps are time-consuming and expensive, so any broker that goes through with them is in it for the long haul.
This shortlist of brokers is a good place to start your search. Then it’s a case of finding the best fit platform for you. A lot of the features of the platforms are generic in nature, but there are some subtle and some not-so-subtle differences. Some brokers specialise in offering a wide range of markets to trade, whereas others focus on providing research. A lot of the decision making will ultimately be influenced by personal preference, and trying out a demo account is to be recommended. These offer a risk-free way to try out a broker’s functionality and get to grips with the mechanics of the investment process.
Whether you’re upgrading from a demo account or setting up a live account from scratch, the pathway to putting on a trade is the same. Regulated brokers will require you to share personal details so they can make sure the account is accessible by you and you alone. There are also some questions relating to investment objectives and your personal experience of investing. There aren’t any right and wrong answers, the information just goes towards the broker complying with its Know Your Client rules.
Most brokers offer an impressive range of payment options. Some are faster than others, and some involve admin fees, so it’s worth checking the T&Cs if you want to avoid giving money away unnecessarily.
One neat feature of regulated brokers is that they have to comply with anti-money laundering laws. These state that any cash paid into a brokerage account can only be returned to the original source account. While the move was initially intended to crack down on international crime, it provides an added layer of security. There’s no way for the broker to wire funds to any account other than the one you used in the first place.
The process of putting on a trade is as simple as entering the amount you want to buy into the data field on the platform. There are other order types to consider, which help traders manage risk. These include Stop Losses, Take Profits and Limit Orders. These additional orders allow you to input instructions into the system to trade automatically if price reaches a certain level. They can help you cut losses on bad positions, take profits on good ones and optimise your entry point into positions. The fact that they do it automatically means you don’t have to watch the market 24/7.
Once everything is in place, then buying Fairtrade shares is as easy as clicking or tapping ‘buy’. At that point, some of the cash you deposited into your brokerage account will be converted into a stock position. As the market price of the Fairtrade stock fluctuates, so will the value of your holding.
Before putting the position to one side, it’s worth double-checking the trade details matched what you intended them to be. ‘Fat finger’ errors do occur, and even experienced traders make a habit of checking trade details immediately after trade execution. Any errors are best rectified immediately before the market price moves too far.
The Portfolio section of the site is where you’ll be able to check your holding. It’s also where you’ll be able to follow the P&L (profit and loss) on the trade and where you’ll head when the time comes to sell. At that point, just click on the position and follow the instructions to close the trade, and the equity holding will then be converted back to cash and any trading profits or losses crystalised.
If you are ready to add some fairtrade stocks to your portfolio you'll need a broker that is regulated, has low fees and a user-friendly platform. Finding one can be a daunting task, which is why we've selected some of our favourites that tick all of these boxes to help you get started.
There are a lot of factors to factor in when you start your trading ‘journey’. Whether you’re looking to invest in initiatives that match your personal objectives or are looking to profit from the increased interest in Fairtrade stocks, the basic principles are the same. Choosing a trusted and regulated broker is crucial. From then on, it’s a case of using your skills to allocate capital to the companies you will get the most out of investing in. Whether you measure your returns in terms of capital gains or in terms of making a difference, choosing the right broker is the first step in that process.
Investing in Fairtrade stocks allows investors to achieve two very different aims. The financial returns from the sector have improved in recent times, and it has become one of the go-to markets for speculators as well as investors. The potential for profits will influence some participants more than others. For many, investing in Fairtrade stocks is, at its core, simply a question of doing the right thing. The fact that, in many instances, it’s turning out to be quite profitable is certainly welcome.
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