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https://www.bloomberg.com/news/articles/2018-12-18/exxon-great-marlboros-awesome-how-esg-investing-lost-its-way?srnd=premium

Investors who think they’re buying environmental, social, and governance funds—ESG for short—to promote a better world often wind up with costlier products that are, in almost every other respect, the same as any index fund. Criteria are so broad and disparate that companies as unlikely as Exxon Mobil Corp. and Philip Morris International Inc., the maker of Marlboro cigarettes, make the cut in some cases.

“There’s a lot of greenwashing,” says David Krysl. A 28-year-old data science analyst from San Diego, Krysl was one of those millennials motivated by the prospect of doing good when he went to invest about $10,000 of retirement savings.

After poring through scores of different options—many of which he found wanting—Krysl settled on a clutch of ESG funds from Nuveen, whose tag line reads: “Align your investments with your values.” But recently, he learned one ETF owns Coca-Cola Co.—which he says is sucking up water rights around the world. (Nuveen says Coke’s water-stress issues have been “less severe” than its peers, and the company scores highly on its carbon footprint and waste.) Krysl is considering moving his money again.

It’s not hard to see why. As fees tumble toward zero in the $3.5 trillion U.S. market for exchange-traded funds, asset managers are desperately trying to come up with new products to sell and more ways to generate revenue. Many have zeroed in on slicing and dicing the investment universe into ever more specific themes (see robotics ETFs), or styles such as momentum.

Though many funds are backed more by marketing than science, they all have one thing in common: higher fees, which firms say are justified because they do something more sophisticated than tracking the stock market.

Granted, ESG is still a tiny sliver of the fund universe. But the fees have money managers seeing dollar signs. Compared with the iShares Core S&P Total U.S. Stock Market ETF, which costs 0.03 percent, investors pay on average 15 times more for do-gooder ETFs. (Nuveen, which charges 0.2 percent to 0.45 percent, says its prices reflect a methodology that’s more akin to active management.)

That means an ESG fund managing $100 million can easily outearn a vanilla ETF that has over $1 billion in assets. With millennials such as Krysl projected to inherit some $30 trillion in coming decades, it’s no wonder ESG has become such a big deal. BlackRock, for instance, will introduce sustainability scores for more than 700 iShares ETFs early next year.

Take the $1.2 billion iShares MSCI KLD 400 Social ETF. It promises “exposure to socially responsible” companies and can be used to “invest based on your personal values.” Yet a quick look shows it owns half the S&P 500. A Vanguard ESG fund holds 4 out of every 5 stocks in that index.

The largest holding in a $22 million OppenheimerFunds ETF is Exxon Mobil, which has been accused by regulators of misleading investors about the cost of climate-change regulation. The fund, which buys companies with “best in class” ESG practices and shuns those that score poorly on controversies, also owns Philip Morris and at least three defense contractors. Oppenheimer says the companies garner above-average ESG scores, based on third-party research that specializes in sustainability analysis.

TL;DR: Look what's inside the ETF or mutual fund first, before buying it.



Submitted December 18, 2018 at 07:07AM by COMPUTER1313 https://ift.tt/2rIo1zO

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