The fund has the lowest Morningstar Sustainability Rating of 1 globe, indicating that the ESG risk of holdings in its portfolio is rather high compared to those of its peers in the Moderate Allocation category. Funds with 4 or 5 globes tend to hold securities that are less exposed to ESG risk. Unlike impact, which focuses on generating positive environmental and societal outcomes, ESG risk measures the degree to which investments could be affected by material ESG issues, including climate change, biodiversity, product safety, community relations, data privacy and security, bribery and corruption, and corporate governance.
One potential issue for a sustainability-focused investor is that AmericaFirst Monthly Risk-On Risk-Off doesn’t have an ESG-focused mandate. Funds with an ESG-focused mandate are more likely to align with the expectations of an investor who cares about sustainability issues. The fund exhibits relatively high exposure (9.31%) to companies with high or severe controversies. Companies with controversies may be involved in incidents such as corruption, employee abuses, and environmental incidents that have a negative impact on stakeholders or the environment. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. In addition, they can damage the reputation of both companies themselves and their shareholders.
One key area of strength for AmericaFirst Monthly Risk-On Risk-Off is its low Morningstar Portfolio Carbon Risk Score of 4.66 and very low fossil fuel exposure over the past 12 months, which earns it the Morningstar Low Carbon Designation. Thus, the companies held in the portfolio are in general alignment with the transition to a low-carbon economy.