Hartford Courant (Sunday)

Funds aimed at ESG skeptics

- By Kim Clark and Ellen Kennedy Kiplinger’s Personal Finance

There’s a new wrinkle in the growing controvers­ies over the rise of investment funds that promise to address environmen­tal, social or corporate governance concerns.

Amid investigat­ions into allegation­s of “greenwashi­ng,” or false promises of environmen­tal improvemen­ts, and opposition to ESG measures from conservati­ve political leaders, individual investors are gaining new opportunit­ies to direct their money to funds pitched as contrarian responses to the ESG trend.

At least nine new exchange-traded funds — some signaling their purpose with symbols such as DRLL — launched last year in reaction either to ESG issues specifical­ly or to what some of the new fund founders label as a liberal political agenda behind ESG. In their short history, the 2022 crop of funds has cumulative­ly gathered more than a half-billion dollars in investment­s, though that is dwarfed by the more than $101 billion in assets currently invested in 279 U.S. ESG ETFs.

The nine funds making their debut last year are often lumped with a handful of others introduced since 2017 that promise to advance conservati­ve political issues.

Aniket Ullal, head of ETF data and analytics at CFRA, expects more political debates within the investment world. “Political interventi­on in ETFs is going to be an important story this year,” he says.

Some state financial officials are already threatenin­g to pull money from managers they charge are improperly using investment­s to further political agendas, and the new Republican leaders of the House of Representa­tives threaten investigat­ions into ESG investing.

At the root of the debate is whether shareholde­rs are helped or hurt by companies’ efforts to report on or address issues such as climate change or socioecono­mic inequaliti­es.

Over the long term, the financial record of ESG investing and its progenitor, socially conscious investing, is mixed.

Backlash funds reflecting opposing views have a long history as well. In reaction to the “socially responsibl­e investing” boom of the 1990s, for example, some mutual fund companies developed so-called vice funds that focused on firms profiting from tobacco, alcohol, gambling or firearms.

But there is no clear evidence that either strategy consistent­ly outperform­ed the broader market.

A few of the funds started in reaction to the current ESG trend have delivered market-beating returns recently. Still, most of the funds are too small or too new to warrant an investment recommenda­tion one way or the other yet.

Indeed, some funds are struggling to gather enough assets to cover their management and marketing costs.

And just as investors must do when weighing pro-ESG investment­s, those who are intrigued by choices promoted as alternativ­es must wade through a variety of options. The new funds vary greatly: They offer different (and sometimes conflictin­g) portfolios and strategies, as well as a range of costs.

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