Anti-ESG funds fail to gain ground

For all the hoopla over environmental, social, and governance (ESG) investing in the US, derisively christened "radical left garbage" and a "poorly performing woke financial scam", demand for its ideological antithesis, if you can call it that, has been muted.

- Andrew McKean

Anti-ESG funds, all of which are domiciled in the US, come in a variety of different flavours — some tilt toward companies fund managers deem unfairly penalised by ESG ratings, others back firms believed to align with conservative principles, and some, dubbed vice funds, embrace "sin stocks" in sectors such as alcohol, tobacco, weapons, and gambling.

Vice funds, the earliest iteration of anti-ESG strategies, were born not out of a moral rebellion but as a calculated bet that stocks shunned by ethical investors would become undervalued, creating opportunities for contrarian gains.

However, Morningstar Sustainalytics head of sustainable investing research Hortense Bioy contends that the ESG has never been a strong enough force to depress the valuation of companies avoided by these investors, emphasising that there was ultimately "no financial basis for it."

"You may just as well take an ETF that tracks those sectors... I don't think it's necessary to invest in sin stocks just because they're excluded from ESG portfolios," she says.