ESG funds outshine S&P 500 during pandemic – analysis

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Large ESG funds outperformed the S&P 500 in the first 12 months of the COVID-19 pandemic, according to an analysis released Tuesday by S&P Global Market Intelligence.

The analysis looked at 26 ESG exchange-traded funds and mutual funds with more than $250 million in assets under management.

From March 2020 to March 2021, 19 performed better than the S&P 500’s 27.1% increase, rising between 27.3% and 55%. Another six funds gained 17.7% to 26%, and one ETF matched the S&P 500 increase.

In addition to screening for stocks based on value and growth, funds identified as “ESG-focused” have additional criteria such as ESG-focused governance practices, sustainability scores, disclosure practices, fossil fuel exposure, adherence to religious principles and workplace diversity.

“Critics of ESG investing often question whether the strategy can deliver premium returns. But ESG fund managers have said their focus on non-traditional risks led to portfolios of companies that so far have been resilient during the COVID-19 downturn,” the analysis found.

The top performer in the funds studied was Parnassus Investments’ Parnassus Endeavor Fund, which “went from being among the poorest performers to the top of the list following tweaks to its portfolio” that led to a 55% increase, S&P found.

Other top performers were Nuveen Fund Advisors’ Nuveen ESG Small-Cap ETF, which saw a 51.5% increase, and Ariel Investments’ Ariel Fund with a 45.4% increase.