Displaying items by tag: esg

While many ESG investors are drawn to the appeal of helping the environment with their investments, the two-year rally in oil and gas stocks has become too much to ignore. The energy sector has led the market for two years rising 135% in 2021 and 2022 compared with a 2.2% gain in the S&P 500 Index. Analysts expect the sector to jump another 22% in 2023, despite its 5.8% decline so far, according to data compiled by Bloomberg. ESG firms have taken notice. Rockefeller Capital Management takes pride in its ESG investing record. While the firm’s larger portfolio follows multiple strategies that include ESG and non-ESG, its $19 billion equity portfolio now has a 6% energy weighting. This is even more than the S&P 500’s energy weighting of 4.8%. Plus, clients in Rockefeller’s wealth management arm, which is separate from its asset management arm, have almost tripled their holdings in Chevron Corp. In fact, the stake’s value has quintupled to $251 million over two years. Their clients have also been buying tens of thousands of shares in Brazilian oil producer Petroleo Brasileiro SA, Diamond Offshore Drilling Inc., and several other S&P 500 Energy Index members, including Exxon Mobil Corp. and APA Corp.

Finsum:With a massive two-year run, and a strong return expected this year, energy stocks have attracted clients of firms such as Rockefeller Capital Management that take pride in their ESG investing record.

Sustainable funds that invest based on factors such as a company’s carbon footprints and workforce diversity were able to attract new investments in 2022, despite a broad market selloff. According to Morningstar, investments into U.S. ESG funds including stocks, bonds, and other categories fell to $3.1 billion in 2022 from $69.2 billion a year earlier, while conventional funds that don’t consider ESG factors, saw more than $370 billion in withdrawals last year. Fixed-income funds accounted for about 75% of sustainable inflows or $2.4 billion. Sustainable products are benefitting from capital chasing greener investments in response to a warming planet, while governments and regulators are increasingly setting ambitious climate targets. This is pushing companies to shrink their carbon footprints. Morningstar’s associate director of sustainability research, Alyssa Stankiewicz, stated, “Investors are experiencing more and more the first or secondhand effects of climate change and societal inequality, and that’s driving their desire to want to have a positive impact.” Some of the ESG fixed-income funds with the largest inflows invest directly in renewable energy and low-carbon transit alternatives. For instance, the Calvert Bond Fund saw $413 million in inflows last year, the third-highest inflow of any sustainable bond fund last year, according to Morningstar.

Finsum:Amid a broad market selloff last year, sustainable bond funds continued to see inflows while non-ESG funds experienced $370 billion in withdrawals as investors chased greener investments in response to a warming planet.

According to a Cogent Syndicated report from Escalent, advisors are not optimistic about the future of ESG investing partly due to growing political tension. Last year, 58% of advisors used ESG investments, down 10 percentage points from 2020, according to the Livonia, Michigan-based firms survey of over 500 financial advisors in September. In addition, only 15% of advisors who used ESG agree with its importance, while the majority of advisors don’t think ESG investing is a significant factor in attracting new clients. As part of the report, Linda York, a senior vice president in the financial services research division of Escalent, stated, “In the past six months, the topic of ESG investing has become even more divisive as political tensions rise. With firms suffering public backlash from using what many call ‘woke’ investment strategies, many advisors are waiting for clarity from regulators before using ESG investments. Increased supervision from federal or state legislature with added qualifications and reporting can only help in terms of ESG becoming more popular among advisors and investors alike.” In examining the reasons for the growing tension, Escalent said that advisors were concerned by the inconsistent definitions and perceived negative public sentiment of ESG.

Finsum:Based on the results of a recent report from Escalent, advisors are not optimistic about the future of ESG due to inconsistent definitions and perceived negative public sentiment.

Investors have continued to pile into ESG funds amid a strong political backlash and new regulations, but what impact does ESG have on expected returns? In their book, Your Essential Guide to Sustainable Investing, Larry Swedroe, and Sam Adams presented the answer to that question from research that included studies from 2017, 2018, 2019, 2020, and 2021. They found that in both U.S. and international markets, ESG strategies’ returns were well explained by their exposures to the Fama-French factors of market, size, profitability, investment, momentum, and value; and multifactor alphas were not significantly different from zero. This indicates that any benefit from incorporating ESG strategies into a portfolio is already captured by other well-defined and known equity factors, meaning investors could not improve their Sharpe ratios by using ESG strategies. They also found that return and risk differences of ESG funds could be significant and were mainly driven by fund-specific criteria rather than by a homogeneous ESG factor. In addition, across four fund categories including index, active, exclusion-based, and non-exclusion based, the majority of observations displayed higher volatility than the broader market. Swedroe and Adams also noted that environmental and social scores did not contribute to performance. However, if investors want to have their cake and eat it too, then they should tilt their portfolios to sustainable firms with exposure to the Fama-French factors of size, investment, profitability, value, and momentum.

Finsum:In their book, Your Essential Guide to Sustainable Investing, Larry Swedroe, and Sam Adams presented evidence that ESG strategies don’t provide any return benefit unless they’re tilted to Fama-French factors of market, size, profitability, investment, and momentum.

White-label exchange-traded fund provider HANetf recently launched a range of model portfolios allocating to both in-house and third-party products. The portfolios were launched in collaboration with London-based financial technology firm Algo-Chain. The six portfolios are targeted at financial advisors, wealth managers, private banks, execution-only brokers, robo-advisors, and other money managers who offer ETF portfolios to their clients. HANetf’s balanced, growth, and adventurous model portfolios use ETFs to provide exposure to equities, fixed income, commodities, and alternative assets. Each portfolio provides a different asset allocation, different risk levels, target volatility, and target maximum drawdown. The firm’s ESG growth portfolio is a multi-asset portfolio that invests in impact investing and ESG-themed ETFs. According to HANetf, third-party ETFs are used where appropriate for the first four portfolios. The Future Trends Themed Equity and Digital Assets and Crypto ETP portfolios, on the other hand, allocate exclusively to HANetf funds. The Future Trends Themed Equity portfolio seeks to invest in ETFs that have exposure to the latest megatrends and themes, while the Digital Assets and Crypto model invests in exchange-traded products that give exposure to some of the largest cryptocurrencies, and an ETF with exposure to the blockchain and digital assets sector.

Finsum:White-label ETF provider HANetf launched six model portfolios, including balanced, growth, adventurous, ESG, future trends, and crypto portfolios.