Is ESG investing a scam?
Vanguard’s CEO thinks so. He pulled $7 trillion in assets from the climate coalition.
This could be the death of ESG.
Here’s what you should know 🧵
Vanguard’s CEO thinks so. He pulled $7 trillion in assets from the climate coalition.
This could be the death of ESG.
Here’s what you should know 🧵
ESG investing became a hot trend over the last decade or so. It stands for Environmental, Social, and Governance investing.
Take a look at fund flows & AUM in ESG through 2019:
Take a look at fund flows & AUM in ESG through 2019:
But major questions have been raised for money managers about ESG over the last couple of years
The main one being, don’t fund managers have a fiduciary duty to invest in the BEST assets, not the most sustainable or green ones?
The main one being, don’t fund managers have a fiduciary duty to invest in the BEST assets, not the most sustainable or green ones?
Also, are ESG funds really helping the planet?
Look at the top holdings for the iShares ESG Aware ETF $ESGU
Look at the top holdings for the iShares ESG Aware ETF $ESGU
It’s basically the top companies in $SPY, minus oil companies
Is Apple’s iPhone manufacturing or the massive amount of garbage created by Coca-Cola products really environmentally sustainable?
Is Apple’s iPhone manufacturing or the massive amount of garbage created by Coca-Cola products really environmentally sustainable?
ESG fund managers and companies have been accused of ‘greenwashing’ - basically, doing one good thing for the environment and blasting out ESG PR messages to hopefully cover up all their net negative environmental activities.
@elonmusk called ESG “a scam” and pointed out that Exxon has a relatively high ESG rating
With the investing world waking up to this, Vanguard’s CEO withdrew from a $59 trillion ESG investing alliance
Why?
"Our research indicates that ESG investing does not have any advantage over broad-based investing"
Why?
"Our research indicates that ESG investing does not have any advantage over broad-based investing"
$ESGU for example performed about the same as $SPY over the last 5 years (48% vs. 46% in favor of ESGU)
But $SPY has a lower expense ratio (0.09% vs. 0.15%) and a higher dividend yield (1.56% vs. 1.50% right now).
But $SPY has a lower expense ratio (0.09% vs. 0.15%) and a higher dividend yield (1.56% vs. 1.50% right now).
Here are a few ESG mutual funds that charge higher fees and reap lower returns:
So is there an edge to ESG investing to justify the fees?
Not really. Here’s how ESG performed vs other strategies over 10 years, from 2011 to 2021:
Not really. Here’s how ESG performed vs other strategies over 10 years, from 2011 to 2021:
ESG funds match the returns of US equities pretty much exactly.
And that’s not a coincidence.
Remember our example from earlier? ESG funds basically are US equity funds, with a few of the ‘worst’ environmental companies removed.
And that’s not a coincidence.
Remember our example from earlier? ESG funds basically are US equity funds, with a few of the ‘worst’ environmental companies removed.
Here’s what former President Trump had to say about ESG investing:
The result of this souring mood on ESG? The ESG funds had their worst quarterly outflows in more than 5 years last quarter
After more than a decade, investors are realizing that there is very little ‘edge’ in ESG investing.
Instead, it’s like most strategies: A shiny new object for certain money managers to dangle in front of investors with the goal of extracting larger fees.
Instead, it’s like most strategies: A shiny new object for certain money managers to dangle in front of investors with the goal of extracting larger fees.
Loading suggestions...