Posted on 04/02/2023 5:27:32 AM PDT by george76
If BlackRock Inc.’s largest ESG-labeled exchange-traded fund is a bellwether for the sustainable investing industry, it’s fair to say the US sector may be in for a bumpy ride.
The assets of the iShares ESG Aware MSCI USA ETF (ticker ESGU) have dropped to $13.8 billion from a high of $25 billion as recently as a year ago. The slump occurred as shareholders pulled money from the ETF, but also as its investment performance trailed benchmark indexes, including the S&P 500, over the past two years.
A recent $4 billion withdrawal from ESGU shows “the concentration risk” that exists in this sector... Last year, roughly 22% of the net new investments in environmental, social and governance-focused ETFs went to just 10 funds, and most of the inflows were large one-off allocations from institutional investors..
It’s possible these same investors might suddenly decide to reduce their stakes. The outsized impact such outflows can have raises questions about the industry’s prospects for long-term growth..
BlackRock has declined to discuss the $4 billion outflow from ESGU, and it’s unclear who withdrew the funds. However, industry analysts said they suspect the trade involved a so-called model portfolio shift. On the same trading day that billions of dollars moved out of ESGU, a similar amount of cash poured into BlackRock’s iShares MSCI USA Quality Factor ETF (QUAL), which isn’t an ESG-focused fund...
BlackRock did say the firm actively manages its “models to capture opportunities in the market. Some ETFs included in BlackRock model portfolios experience inflows or outflows, driven by advisers who trade their clients’ portfolios in line with BlackRock’s models.”
While it’s possible the outflow from ESGU isn’t linked to overhanging concerns about the future of ESG investing, “the effects of concentration risk are clear,”..
The global assets of ESG ETFs are currently at about $471 billion, down from $486 billion as recently as January, according to Bloomberg Intelligence. More recently, investors pulled almost $4.4 billion in the week ended March 17 and another $142 million in the week ended Friday
....
Another headache confronting the ESG industry is the looming downgrade by MSCI Inc. of about 31,000 funds. The research firm said it now believes the threshold required to receive a top rating of AA or AAA “should be more rigorous and ambitious.”
Joe Dabrowski, deputy director of policy at the UK Pensions and Lifetime Savings Association, whose members oversee a combined £1.3 trillion ($1.6 trillion), said any significant change in ratings will prompt investors to re-examine their fund holdings to establish whether they continue to “deliver in line with their strategy and investment beliefs.”
And then there are performance concerns. Many ESG funds have been trailing market benchmarks since the US Federal Reserve started increasing interest rates last March, prompting equity investors to favor “value” stocks like oil and gas producers over “growth” stocks such as technology companies.
Eric Balchunas.. contends Fed Chairman Jerome Powell “has done more to damage ESG than Florida Governor Ron DeSantis could ever dream of,” adding that “the political stuff is secondary to what’s happened to rates and the simple fact is many funds are currently underperforming.”
It’s not only ESGU that’s trailing the broader market. The $5.9 billion Vanguard ESG US Stock ETF (ESGV) has declined 1.8% during the past two years, compared with the 4.9% advance of the S&P 500 in the same period.
This year, the average ESG-focused fund in the US rose 1.2% as of Friday, lagging behind the S&P 500’s 3.8% advance and the 3.6% return of the Russell 1000 in the same period..
ESG metrics are here to stay because active managers are always going to take the strategy’s considerations into account when deciding what to buy and sell. For example, investing in clean technologies clearly makes sense
...
unless performance improves soon, “we are going to find out who are the true believers in ESG.”
This is happening… to think otherwise is a fairy tale. The uniform commerce code, passed handily in red states… gave the fed the only authorized digital currency and replaced the dollars we are holding now.
Just like Covid tyranny… this will be enacted with republicans at leadership.
Investing in ESG has a lower carbon footprint than making a backyard bonfire of your money.
ESG is part of creeping fascist tyranny.
ESG and Islamic finance industry the same ?
Fink , the CEO of Blackrock, started out with a great financial product that predicted toxic investments. Now his product is worse than bad. Why would anybody trust their money with that Communist Fink?
HYG - High Yield Corporate Bonds
HYG has a 55% short interest!
When it had a 25% short interest a couple months ago, I assumed it was just highly aggressive speculators betting that interest rates would continue to rise, which would drive down the HYG share price. Before maturity, if interest rates go up, the price of bonds goes down.
However, this 55% short interest (almost $7 billion) is off the charts. To my eye, that number says that short sellers believe a substantial number of bonds in the HYG portfolio are going to default.
If my theory is correct, the HYG down side explosion could not happen to a more deserving crew of BlackRock investment advisors.
BlackRock Inc.’s largest ESG-labeled exchange-traded fund, evil f###S need to be taken to the shed
Bkmk
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