“If you want to beat the S&P 500, start thinking of the index as a filter and not a benchmark. It’s the starting line; not the finish line.” Andrew D. Ellis, Founder, ThinkingLonger, LLC
Jon Hale, a fellow Medium writer, called our attention a while ago to the SEC’s Division of Examinations which released a Risk Alert on Environmental, Social, and Corporate Governance (ESG) investing “resulting from recent examinations of advisors who serve clients directly or who offer ESG models and separately managed accounts, as well as those who offer public funds.” The SEC takes no position on the economic merits of ESG investing. Rather, the SEC is reminding everyone to mean what they say and say what they mean. Fair enough. But, let’s dig a little deeper.
You would think that ESG investing would naturally be in sync with our “lean” F.I.R.E. friends whose minimalist approach to savings, investments and life-styles would be supportive of ESG objectives. But, that may not be true.
Remember, the F.I.R.E. movement is “a program of extreme savings and investment that allows proponents to retire far earlier than traditional budgets and retirement plans would allow.” Implicit in this approach is a commitment to maximizing the profitability of one’s investments, thereby allowing for the earliest possible retirement. Yet, investing in ESG opportunities may not yield the best returns.
Based on Wayne Winegarden analysis, Pacific Research Institute’s Senior Fellow in Business and Economics, PRI has noted,
“In recent years, ESG funds have been presented to investors as socially responsible as well as likely to outperform broader based funds. But, the long-term record of ESG funds when compared to an S&P Index fund show that’s not necessarily the case.”
“In his “Environmental, Social, and Governance (ESG) Investing: An Evaluation of the Evidence,” Winegarden analyzes 30 ESG funds that have either existed for more than 10 years or outperformed the S&P 500 over a short-term period.
“Analyzing the 18 funds with a 10-year track record, the study concludes that a $10,000 ESG portfolio would be 43.9 percent smaller compared to an investment in a broader, S&P 500 index fund. Just one fund would beat the earnings of an S&P 500 investment over…