Identifying Well-Managed Companies through Sustainability

The Portfolio Managers of the Hennessy Sustainable ETF discuss how broadening earnings growth could sustain the bull market, the opportunities and risks surrounding AI, the recent addition of Ecolab, and the role of sustainability analysis in identifying well-managed companies.

October 2026
  • Bill Davis
    Bill Davis
    Portfolio Manager
  • Kyle Balkissoon
    Kyle Balkissoon
    Portfolio Manager

Key Highlights

» We believe earnings growth is a key reason the rally could continue into 2027.

» We recently added Ecolab. Among other attractive factors, sustainability is deeply embedded in Ecolab’s mission, culture, and operations.

» A concern about a market correction in AI-related investments does not diminish our view of AI’s long-term potential.

» We believe broader market participation and AI’s expanding applications across industries could create a stronger foundation for long-term growth.

» Our sustainability analysis helps us identify wellmanaged companies and uncover financial, legal, and reputational risks tied to governance, employees, customers, and the environment.

What could support a continuation of the bull market?

We believe earnings growth is a key reason the rally could continue into 2027. S&P 500 earnings grew approximately 31% in the second quarter of 2026 compared with a year earlier. Notably, it wasn’t just growth from the Technology sector, although roughly half was AI-related. We are also seeing signs of earnings growth broadening beyond Technology, with improving earnings outlooks for companies in Health Care and Industrials along with smaller businesses. We believe this broader base of earnings growth could help sustain the bull market.

How do you view AI’s potential and the broader market outlook?

One test of a resilient market is its ability to work through speculative excesses. In the near to medium term, we believe the question is whether market breadth and underlying strength can improve enough to withstand a significant correction in AI-related investments.

That concern does not diminish our view of AI’s long-term potential. We believe the technology is transformative and will reshape businesses across the economy. However, the circular financial relationships among companies involved in the buildout warrant scrutiny, particularly where cloudrelated business models remain unproven.

We also see an important distinction between hardware and cloud infrastructure. Semiconductors are essential to a wide range of everyday products, and some chipmakers have orders extending several years into the future. The ultimate returns on certain cloud-related investments are less clear.

In summary, we believe broader market participation and AI’s expanding applications across industries could create a stronger foundation for long-term growth.

Would you please discuss a recent addition to the Hennessy Sustainable ETF?

A recent addition to the portfolio is Ecolab (ECL). While sustainability isn’t the only factor we consider, sustainability is deeply embedded in Ecolab’s mission, culture, and operations. In 2025, Ecolab saved 245 billion gallons of water and avoided 4.7 million metric tons of greenhouse gas emissions.

How can sustainable investing help identify and manage investment risks?

We view a sustainable analysis as one way to identify well-managed companies. Poor governance or a failure to address responsibilities to employees, customers, and the environment can create financial, legal, and reputational risks that may not be apparent on a balance sheet.

Active ownership is an important part of that process. Through proxy voting and direct engagement, investors can encourage companies to address potential problems before they become more significant. How management responds can also provide insight into its approach to long-term risks.

While the terminology around sustainable investing may change, we believe the underlying principles remain especially relevant. Our goal is to identify companies with sound management practices and accountability to shareholders, building a diversified portfolio that seeks to outperform the broader market while mitigating downside losses.

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