Should Your Client’s ESG Fund Be a Core Equity Holding?

Posted by Dana Funds Investment Team on Aug 19, 2020 4:02:33 PM

As client demand for ESG strategies grows, advisors have a tough job ahead of them: finding a strategy that is suitable as a core equity holding. Without proper due diligence on fund construction, a strategy used as a core holding may expose a client to unintended risks.

The details are all in the portfolio construction process. As we explain in our recent investment brief on ESG due diligence, many funds rely on ratings or exclusionary screens to simply select stocks with the best ESG attributes or avoid those with the worst. This process will likely match a client’s intention of wanting to invest in companies that reflect their values. But if the fund is going to be used as a core equity holding, advisors must check that there are guardrails in the construction process that ensure the fund will investors broad, equity market coverage.

Dana takes several steps in its own portfolio construction process to make sure our ESG fund can fit as a core holding. As we explain in our recent paper:

“Several steps within Dana’s portfolio construction process ensure its Epiphany Fund offers the breadth of coverage suitable for a core equity holding. The fund takes a sector neutral approach relative to its benchmark, instead of overweighting a single, historically ESG friendly sector such as technology. The fund is also a core strategy, including both value and growth stocks. ESG principles are integrated throughout the portfolio, with the goal of influencing positive corporate behavior for a broader set of companies.

“A strategy such as Dana’s still seeks to outperform its benchmark by selecting companies with superior environmental, social and governance attributes, and pushing management teams to affect positive change … But the portfolio construction process ensures the strategy achieves the equity-like returns advisors and their clients count on over the long term.”

To learn more about some of the issues advisors and clients should consider when entering the ESG space, download our full investment brief below, ESG Due Diligence: How Advisors Can Navigate the Growing Field of Funds.


ESG Due Diligence: How Advisors Can Navigate the Growing Field of Funds


The Dana Funds are distributed by Ultimus Fund Distributors, LLC. There is no affiliation between Ultimus Fund Distributors, LLC. and the firms referenced in this blog post.