Climate Change Pushing U.S. Fund Managers Out of Apparel Stocks

Retailers have long relied on sales of high-margin winter coats and boots to boost annual profits, but with the season becoming shorter and warmer, U.S. fund managers are shedding department store and apparel stocks, convinced the industry is becoming a victim of climate change.

"They desperately need to acknowledge that climate change is happening, and that they need to change how they do business," said Larry Haverty, a fund manager at Gabelli.  He has sold nearly all his retail holdings because of changes in weather patterns over the last decade.

The industry's long supply lines are one reason why apparel companies and department stores struggle to adjust to warmer winters, Haverty said.  The industry is also still wedded to the idea that buyers want winter coats - which tend to have margins of around 40 percent - in early October, when summer weather often lingers.

The 2015-2016 winter was the warmest on record, prompting many U.S. fund managers to abandon apparel stocks altogether.  Approximately 48 percent of U.S. actively managed equity funds have zero exposure to apparel companies, up from the 38 percent of funds that shunned apparel stocks at this time last year, according to Morningstar data.

There are signs that this season will continue to be hard on apparel makers.  The average temperature in October, often seen as the kick-off to winter clothing sales, was nearly 58 degrees.  That was the third-warmest October on record and the warmest since 1963, according to the National Centers for Environmental Information.

The average October temperature has warmed by 0.6 degree per decade over the last 30 years, with only September having a greater increase in average warmth, the Centers said. Fifteen of the 16 warmest years on record have been in the 21st Century.

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