The International Business Times reported on a new Pacific Research Institute (PRI) study of ESG funds. The study - authored by Wayne Winegarden, Ph.D (PRI Senior Fellow in Business and Economics, Director of PRI’s Center for Medical Economics and Innovation, and Principal of Capitol Economic Advisors) - analyzed 30 ESG funds that either have existed for over 10 years ("mature") or outperformed their respective conventional S&P 500 benchmark funds in the short-term.
Key takeaways include:
- Based on the 10-year growth rate through April 2019, an equal-weighted $10,000 investment in the ESG funds (i.e., a $10,000 ESG fund portfolio - equally divided across the funds, including the impact from management fees) would be nearly 44% smaller than a similar investment in a broader S&P 500 index fund.
- Only one of the mature ESG funds outperformed (based on earnings) an S&P 500 benchmark investment over five years, and only two outperformed the S&P 500 benchmark over a 10-year period.
- The ESG funds were less diversified, and thus were associated with greater volatility/higher risk.
- The average expense ratio of the ESG funds was 0.69% - compared to 0.09% for the S&P 500 index funds.
Based on the study's findings - namely, lower returns, greater volatility, and higher costs as compared to broad-based index fund investing, Winegarden cautions against institutional investors - and public pension funds in particular - investing in ESG funds. Rather, he recommends ESG fund investing be an option for individual investors who may - and should be entitled to - prioritize non-financial goals in lieu of maximizing financial returns.
See PRI's release. This post first appeared in the weekly Society Alert!