Even though there is a lot of controversy surrounding large-cap tech names such as Facebook, Alphabet and Apple, Grant has those stocks in her portfolio.
Investors don't have to sacrifice big returns when focusing on ESG investing (environment, socially responsible and corporate governance) said Grant.
She also likes PayPal because it is benefitting from the shift to online payments and in her view has very strong corporate governance.
CONWAY GITTENS: Wall Street is rallying solidly on this Monday with some expectations that there could be some movement on the stimulus talks in Washington. But technology is really leading the pack. We got the NASDAQ up about 3%. And I want to focus in on technology and the world of responsible investing with Valerie Grant. She's the senior portfolio manager at AllianceBernstein.
VALERIE GRANT: Oh, thank you for having me. It's great to be here.
CONWAY GITTENS: We got, you know, the report last week talking about anti-competitive behavior from the technology companies. And at the same time, our world right now is being driven by technology. So how do you weigh those two factors together, being a portfolio manager for responsible investing?
VALERIE GRANT: You know, it's very interesting trying to evaluate tech stocks right now. My personal view is that the fundamentals are quite strong. As you said, technology is really pervasive in our lives, both personally and professionally. What we've seen with the coronavirus pandemic is an acceleration, in terms of the adoption of electronic commerce across the board. That drives demand for network capacity. That also drives demand for electronic payments. And so technology really has been a beneficiary, ironically, of the coronavirus pandemic.
However, there are a number of very important environmental, social, and governance issues that apply to technology companies. Obviously, you have the challenge-- or the allegations-- related to anti-competitive behavior. That will be a regulatory process that will work its way through regulatory as well as legislation, perhaps. My own view is that I don't necessarily see evidence of consumer harm. And so if that is the standard that will be used to assess whether or not these companies are engaging in anti-competitive behavior, I'm not sure there's a lot of basis for that conclusion.
However, there are other environmental and social issues, most importantly. So on the social side, let's look at employee safety. Let's look at labor and management relations. On employee safety, companies like Amazon employ hundreds of thousands of people directly, as well the similar number of contractors. And we know that they've had some challenges trying to keep employees safe in their warehouses during the pandemic.
And so that's an issue that we scrutinize pretty heavily because, quite frankly, the worst thing that could happen for Amazon would be for someone to contract coronavirus after accepting a package, right? That's been through their distribution facilities. So I'm sure they don't want that. But as an investor, we're really following that quite closely.
In addition, there are labor management concerns, if you will, around wages, collective bargaining rights, the benefits that are available to employees, as well as employee mobility. Because the income inequality that has really been laid bare throughout the pandemic really is something that, I think, forward-looking management teams are focused on within their own organizations because that's where they have the greatest level of control. They can really look at, how can we equip our employees for the jobs of tomorrow? How can we offer them opportunities to advance and increase their wages and provide for their families in a more sustainable way? So those are just a few of the issues that I'm focused on.
CONWAY GITTENS: So we have a lot of stock pickers that watch these videos, and what is the advice that you would give to them? They want big returns. But at the same time, they want to be true to their values. So how do they do that when it comes to the world of technology?
VALERIE GRANT: Right. Well, what we do-- I'll illustrate by the way that we think about it-- is we look for companies that offer attractive risk-adjusted returns as well as attractive corporate responsibility characteristics. Now, we don't look for companies that are perfect, right? We look for companies that are on the right path. And an example within tech, which is a core holding, is PayPal.
So PayPal actually enables online payments for individuals and companies. They are absolutely benefiting from the shift to e-commerce. They have very strong corporate governance practices. They have a very diverse board. Their board is largely independent, which is a bit unusual in the technology sector.
And they've been very forward-thinking when it comes to enabling small and medium-sized businesses, right? To adapt and to benefit in this new digitally-enabled world. So I would say PayPal is an example of a company that is doing well and also has some very strong and very compelling ESG characteristics.
CONWAY GITTENS: So I know from your note that when you look at the world of technology in terms of social investing, you revolve around a couple of themes-- data security, data privacy, employee safety, human capital management, and labor management issues. So what are some of the other stocks-- you know, best in class-- when you look at that-- at those reference points?
VALERIE GRANT: We do own the large technology names-- so Apple. We are shareholders in Facebook. We own Alphabet. So we own the big names, most certainly-- Microsoft as well.
Let's take a look at Alphabet as an example. So we know that Alphabet, which is the parent company of Google, they make most of their money from advertising, right? And so what that means is that their services to consumers are actually free, right? But they generate the money when advertisers seek to target those consumers. So data security and data privacy are absolutely critical for them. And what we've seen with Alphabet in particular is they actually have pretty strong practices in that regard.
Now, if you look at Facebook, we know that Facebook has had some real challenges around data privacy and data security. They paid a multibillion dollar fine about two years ago in that regard, and I think they have taken that issue quite seriously. With Facebook, I think that they have some particular-- how can I say this-- controversies, as it relates to content monitoring. So that wasn't on my list because it's not something that applies so broadly. But I think for Facebook and other social media platforms, the issue of content monitoring is front and center, particularly as we go into this highly-controversial election coming up.
- Thank you for those insights. That's Valerie Grant. She is the senior portfolio manager for responsible investing at AllianceBernstein. I'm Conway G. Gittens, and this is "Reuters."