As global efforts to reduce carbon emissions and emphasize greener lifestyles gain momentum, Fidelity’s Jordan Michaels believes companies in the construction and housing industry are incorporating environmental considerations into their product development and positioning their businesses to benefit from this long-term trend.
“A focus on environmental sustainability can propel growth in this industry as businesses and consumers seek to reduce their carbon footprint and shift their energy resources to renewable sources,” says Michaels, portfolio manager of Fidelity® Select Construction and Housing Portfolio (FSHOX).
While the global shift to environmental sustainability has been many years in the making, the U.S. Inflation Reduction Act of 2022, passed in August, offers numerous incentives for consumers to invest in sustainable, energy-saving products, such as solar panels and heat pumps.
“This law is just the latest effort by the government to help facilitate the transition to renewable resources, and it supports my conviction that environmental sustainability can be an important consideration when choosing investments,” says Michaels.
In managing the fund, Michaels has made home improvement retailers Home Depot (HD) and Lowe's (LOW) the two largest holdings as of December 31. Both carry products that help consumers retrofit many items in the household, including energy-saving appliances, windows, insulation, and lighting fixtures.
“Sales growth in these areas has helped drive revenue for both companies,” he says.
Johnson Controls (JCI), our third-biggest position at the end of December, is another company that is helping consumers and businesses conserve energy and meet their environmental goals of reducing carbon emissions, Michaels says. Johnson Controls manufactures heating, ventilation, and air conditioning systems with remote equipment monitoring that can assist efforts to lower energy consumption.
The fund also has held shares of composite deck, rail, and trim manufacturer Azek (AZEK), which uses post-consumer materials to build decking materials that require less maintenance over the longer term than traditional wood products. Although the upfront cost of Azek’s materials may be more expensive than traditional wood, the longer-term benefits provide a solid value proposition to consumers, according to Michaels.
“Environmental sustainability can be a powerful driver of growth for companies and provide value to their customers, as well as shareholders, in the long term," he says.
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