Your ESG fund may beat the market for reasons that have nothing to do with ESG

By Trey Thoelcke Updated Jun 15, 10:29AM EDT · Published Jun 15, 4:26AM EDT

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Your ESG fund may beat the market for reasons that have nothing to do with ESG — © 3DSculptor / iStock via Getty Images

(Mark Hulbert, an author and longtime investment columnist, is the founder of the Hulbert Financial Digest; his Hulbert Ratings audits investment newsletter returns.)

CHAPEL HILL, N.C. (Callaway Climate Insights) — The superior performance of your ESG fund may not mean what you think it does.

This has been a recurrent theme of mine, as I caution climate-focused investors against thinking that their portfolios over the long term can both do good and do well. Just three weeks ago, you may recall, I discussed research that found some fund companies engage in gaming behavior to artificially boost the performance of their ESG mutual funds and ETFs.

In today’s column I will focus on another way in which funds may be beating the market for reasons having nothing to do with their emphasis on environmental, social or governmental factors: ESG funds skew towards the growth end of the value-versus-growth spectrum, which propels them towards the top of the performance scoreboards when growth outperforms value.

This spectrum refers to the well-known dimension along which Wall Street analysts categorize stocks. A company in the value camp is out of favor, with its stock trading for relatively low ratios of price to book value, sales, earnings, cash flow and so forth. The investment thesis behind investing in value stocks is “buy low, sell high.”…

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About the Author Trey Thoelcke →

Trey has been an editor and author at 24/7 Wall St. for more than a decade, where he has published thousands of articles analyzing corporate earnings, dividend stocks, short interest, insider buying, private equity, and market trends. His comprehensive coverage spans the full spectrum of financial markets, from blue-chip stalwarts to emerging growth companies.

Beyond 24/7 Wall St., Trey has created and edited financial content for Benzinga and AOL's BloggingStocks, contributing additional hundreds of articles to the investment community. He previously oversaw the 24/7 Climate Insights site, managing editorial operations and content strategy, and currently oversees and creates content for My Investing News.

Trey's editorial expertise extends across multiple publishing environments. He served as production editor at Dearborn Financial Publishing and development editor at Kaplan, where he helped shape financial education materials. Earlier in his career, he worked as a writer-producer at SVE. His freelance editing portfolio includes work for prestigious clients such as Sage Publications, Rand McNally, the Institute for Supply Management, the American Library Association, Eggplant Literary Productions, and Spiegel.

Outside of financial journalism, Trey writes fiction and has been an active member of the writing community for years, overseeing a long-running critique group and moderating workshop sessions at regional conventions. He lives with his family in an old house in the Midwest.