How is ESG Doing?

Sustainable funds in the United States continued to attract record flows from investors in 2020, just as they did the year before and the year before that. In 2020, flows into open-end sustainable funds reached $51 billion, more than double 2019’s $21 billion and up 10x from 2018’s $5 billion.¹ ESG (Environmental, Social and Governance) and quality factors outperformed going into and initially coming out of the COVID-19 pandemic. Since the Pfizer vaccine announcement on Nov. 9, the performance picture has changed.²

What is working lately

The Pfizer vaccine announcement changed the trajectory for financial markets and had an outsized impact on ESG stocks. Broadly, ESG as a factor has underperformed the S&P 500 since Nov. 9.³ This underperformance is the result of ESG’s pronounced high-quality bias. High quality was bid up as the COVID-19 crisis unfolded in the first quarter of 2020 and continued into the second half of the year. A successful vaccine provided investors with confidence to buy stocks of companies that had underperformed due to pandemic-related lockdowns and changes in demand.

Not all ESG is the same

While ESG has generally underperformed since November 2020, this trend is not ubiquitous. For investors who have invested in more economically sensitive companies, performance has been significantly stronger. Credit Suisse created a basket of cyclically oriented ESG stocks from the U.S., representing six sectors.⁴ This basket has nearly doubled the return of the S&P 500 since Nov. 9, 2020.

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Sources

1. Morningstar, “A Broken Record: Flows for U.S. Sustainable Funds Again Reach New Heights”, Jan. 28, 2021.
2. Pfizer Press Release, Nov. 9, 2020.
3. Credit Suisse, “ESG Stocks for Reopening Economy”, May 27, 2021.
4. (Pie Chart/Column Chart): Credit Suisse, “ESG Stocks for Reopening Economy”, May 27, 2021.

Disclosures

Investment Solutions at Hightower Advisors is a team of investment professionals registered with Hightower Securities, LLC, member FINRA/SIPC, & Hightower Advisors, LLC a registered investment advisor with the SEC. All securities are offered through Hightower Securities, LLC and advisory services are offered through Hightower Advisors, LLC. This is not an offer to buy or sell securities. No investment process is free of risk and there is no guarantee that the investment process described herein will be profitable. Investors may lose all of their investments. Past performance is not indicative of current or future performance and is not a guarantee. In preparing these materials, we have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public and internal sources; as such, neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Hightower shall not in any way be liable for claims and make no expressed or implied representations or warranties as to their accuracy or completeness or for statements or errors contained in or omissions from them. This document was created for informational purposes only; the opinions expressed are solely those of the author, and do not represent those of Hightower Advisors, LLC or any of its affiliates.