If You Follow the Money, ESG Funds Are Starting to Walk Away with the Title

By: Andrew McShane

Remember when investing news was constrained to the pages of the Wall Street Journal and the only puffery allowed was Jim Cramer honking a horn on Mad Money?

If you feel the investing world has been turned over to the tabloids, you aren’t alone. 2021 is only 6 weeks old, but in that time, the world watched major hedge funds get short squeezed by a Reddit group, and the price of Bitcoin rocket up 30% because of an Elon Musk tweet.

It’s understandable. These stories are incredibly captivating and reflect an amazing, new intersection between technology, social media, and investing.

However, one lesser-known sector of the market, and perhaps dull in comparison, is quietly making investors a ton of money. It may also just be getting started.

Last year, ESG investing (Environmental, Social, Corporate Governance) Funds set a record by capturing $51.1 billion of new money from investors. If that sounds like a lot, it is. ESG funds accounted for about a fourth of the total money invested in stock and bond mutual funds.

So, who is fueling this growth?

What are some of the top ESG funds out there?

And, should you invest in an ESG fund?

Great questions. Let’s answer them.

Who is Fueling the ESG Fund Growth?

Pretty much everyone.

Fueling ESG funds from the bottom-up are Millennials . Millennials have traditionally been viewed as non-investors. They are looked at as a group who has too much debt, and favor travel and experiences over investing in the markets. While, that is partially true, the times are changing. Millennials are super ambitious and have started coming off the sidelines as more of them start having families of their own, and begin enter the peak earning years of their careers.

They are also environmentally conscious. In fact, Morgan Stanley research finds that those under 35 are twice as likely to sell a stock if they consider the company to be environmentally unsustainable.

Fueling the ESG funds from the top-down is the government. The new democratic administration has made climate change a priority and is committing nearly $2 trillion dollars toward a green infrastructure. It is also likely that the Biden administration will reverse rules from the previous administration that deterred 401(k) plans from offering ESG options.

And of course, in the middle, you have the institutions. Of course institutions are going to follow the money as well. The number of sustainable funds available to investors grew to almost 400 last year. That is nearly a 400% increase over the past 10 years.

What are the Top ESG Funds?

As I mentioned, there are over 400 ESG funds on the market today.

The funds below performed extremely well in the past year. They have continued to show strength YTD and are poised for continued growth.

  1. QCLN: First Trust NASDAQ Clean Edge Green Energy Index Fund
    • 2020 Performance: +184%
    • YTD Performance: +24%
    • Top Holdings (of 44 total): Tesla, Enphase Energy, Sunrun Inc., NextEra Energy Partners
    • Dividend: Yes, .25% yield
  2. PBW: PowerShares WilderHill Clean Energy
    • 2020 Performance: +205%
    • YTD Performance: +28%
    • Top Holdings (of 59 total): ReneSola Ltd, Daqo New Energy Corp, FuelCell Energy, Arcimoto Inc.
    • Dividend: Yes, .34% yield
  3. TAN: Invesco Solar ETF
    • 2020 Performance: +234%
    • YTD Performance: +18%
    • Top Holdings (of 37 total): Enphase Energy, Sunrun Inc, Solar Edge Technologies, SunPower Corp
    • Dividend: Yes, .08% yield

Should You Invest in an ESG Fund?

That is completely up to you. There is risk in every investment and it depends on your investor type and what your financial goals are. However, it’s hard to argue a case against the power and momentum of ESG funds. Leave the short squeezes and speculative assets to the tabloids. If you look to the future, ESG funds are one investment poised to sustain.



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