Investments to avoid

The portfolio’s major focus is on technology and consumer goods companies. This is a post about which sectors I tend to avoid.

In general, I tend to avoid the Mining, Energy and Utilities sectors. This is for a few reasons:

1. ESG (Environmental, Social and Governance) concerns
Companies in these sectors pollute quite heavily. Examples are large oil companies such as ExxonMobil and BP Plc.
Both of these companies have been responsible for some terrible natural disasters – The Exxon Valdez oil spill in 1989 and the Deepwater Horizon oil spill more recently in 2010.
Although many of these companies are trying to become more "green", their core product is something that can't ever be environmentally friendly.

2. Growth
Companies in these sectors tend to be slow and steady as well as capital intensive. They usually pay good dividends, but there's no exciting or transformative growth story. This doesn't fit with my portfolio strategy of owning businesses with fantastic growth prospects.

3. Quality
As these businesses tend to be capital intensive, their returns on capital and margins tend to be quote low. This doesn't fit with my portfolio strategy of owning good quality businesses with sustainably high returns on capital and margins.

But...
Having said all of that, there are always exceptions to the rule. At the time of writing, I do have small positions in both Ørsted and Vestas Wind Systems, which both benefit from the adoption of renewable energy - specifically wind power.

Ørsted completely transformed itself into an offshore-wind business. It used to be an oil and gas company called DONG (Danish Oil and Natural Gas) but now focuses purely on renewable energy. This is an area which I believe has good large long-term growth potential.


Vestas is also in the wind business - they manufacture and supply wind turbines as well as providing ongoing maintenance services. They have been benefitting from the increased adoption of wind power, and should continue to grow their high margin service revenue.\




Note: This was adapted from my post on eToro on 4th September 2021.