Many ESG strategies enjoyed a strong performance relative to their benchmarks in recent years. Much of it was due sector exposure. Simply put, many ESG strategies were overweighted growth-oriented technology companies, which score well in ESG ratings and analysis due to their lower carbon footprint.
But as market breadth widens possibly making value investing come back into favor, some of these strategies may be ill-prepared for the rotation. In a recent call with clients, our own Duane Roberts explained:
Duane Roberts: If you think about the last five or six years, market performance has been dominated by high growth technology companies. That's been wind in the sales for many ESG managers who focus on these transformational technologies, and avoid some of the old industries … But over the last six months or so, value is starting to close that gap a little bit, and I think that plays to our strength.
We’ve always invested with a value tilt, and are sector neutral, which leaves us invested in value-oriented sectors. We’ve always looked for positive characteristics for each individual company, and then find the best representatives within each sector. This shift from a very narrow growth-dominated market to a broader, more value-aware market is allowing that type of analysis, which is our bread and butter, to potentially stand out.
We have some industrial holdings, for example, or food companies, where there are really strong ESG stories. They’re on the value side of the market, and now those stocks are being rewarded.
To learn more about our history in ESG investing, and what makes our strategies different from a growing field of funds in the space, we invite you to listen to the full call.