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By Rob Brookby - November 28, 2018
One thing is certain, humans will never stop producing waste. One of the largest types of waste is the single-use plastic used in light-weight packaging such as yogurt cups, bottled water and the lids to our favorite lattés. We have tricked ourselves into believing that because we can “recycle plastic,” we should enjoy its convenience without another thought.
That fragile feel-good feeling, however, rested partly on China’s importing much of the world’s plastic waste and performing the recycling. Because China has now banned most plastic waste imports, excess plastic waste is causing cities across the U.S. to lift restrictions on plastic in local landfills.
There is simply no other place for it to go, and our own end markets for recycled material cannot absorb it. Perversely, this is likely to put pressure on reducing “recycling” efforts in the U.S. and simply collecting more plastic trash as conventional trash and burying it in landfills. Many people believe we can do better than that.
Thematic investing involves identifying specific social, economic, industrial, and demographic trends, or “themes” likely to reshape the economy for years to come.
How can this approach tackle the plastic waste problem and reward investors? First, let’s consider the concept and how we address it in American Century Investments’ Heritage mutual fund. Heritage is a mid-cap growth fund that seeks to build capital over time through investments in higher-quality companies with durable long-term, growth opportunities driven by identifiable themes.
Importantly, this top-down approach is combined with fundamental bottom-up analysis to uncover individual stocks that in due course may deliver positive performance to a portfolio of securities benefiting from those themes. Those companies are typically higher quality, meaning they have durable franchises with strong management, leading products or a superior business model.
Furthermore, outsized stock returns (alpha) can be derived from companies that have attained positive inflection points in their businesses. Inflection points are events or circumstances which signal that company fundamentals are about to change significantly. They can serve as triggers to invest in certain stocks right before the heart of company growth cycles or at times when companies’ have improved their risk profiles.
Plastic pollution is a significant problem in the U.S. and around the globe. A world without plastic seems unimaginable, yet its large-scale production and use dates only to about 1950.1 Plastic is a durable material made to last forever, yet 33% of it is used once and then discarded. Plastic doesn’t biodegrade, it breaks down into small pieces. Americans discard more than 30 million tons of plastic annually, only 8% of which gets recycled. The rest ends up in landfills or becomes litter while a small amount is incinerated.2 In 2016, the global production of plastics reached 335 million metric tons as seen in the chart below.3
One way to leverage the plastic waste theme is investing in companies that offer alternatives that are friendlier to the environment. For example, the Colorado-based Ball Corp. offers a solution to plastic waste in the form of recyclable aluminum. The mid-cap materials company points out that aluminum is globally abundant and has an impressive recycling record. According to the Aluminum Association, nearly 75% of all aluminum ever produced is still in use today.
Ball pursues innovative, environmentally sustainable packaging to help mitigate waste creation. In 2017, Ball launched STARcan, a next-generation beverage can that leverages the company’s weight optimization know-how to offer its most metal-efficient can to date. Such innovation may be a sign of an inflection point in a high-quality growth company within an attractive investment. Is Ball at such an inflection point with the potential for superior future returns? Only time will tell!
1 Roland Geyer, Jenna R. Jambeck and Kara Lavender Law, “Production, use, and fate of all plastics ever made,” Science Advances, 19 July 2017.
2 Plastic Pollution Coalition.
3 Statista, 2018.
Economic activity around the world is softening, which Sr. Portfolio Manager Brent Puff believes could make finding future growth more challenging.
Co-Chief Investment Officer Gregory Woodhams explains why this second round of tariffs could be more damaging than the first.
Portfolio Manager Prabha Ram is focusing on companies that have sustainable growth in their mix as she looks at investments for the rest of 2019.
Learn about how we believe thematic investing can help address global waste issues.
November 28, 2018
2018 may have been difficult for emerging markets, but Sr. Portfolio Manager Patricia Ribeiro has three reasons to look forward to a better 2019.
January 8, 2019
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Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.