Here’s What Stock Market Investors May Get Wrong About ESG As The Big Turnover Unfolds, Says BofA

Funds focused on environmental, social and governance criteria may be better off than many think when it comes to profiting from turnover in value stocks, according to a report by BofA Global Research. “A criticism of ESG investing is that it tends to favor growth stocks at the expense of value-oriented sectors,” said Savita Subramanian, Bank of America equity and quantitative strategist, in a research note dated April 1. . ” But our analysis of US-domiciled ESG fund holdings paints a different picture. “

BofA found ESG funds to be overweight industries, materials and real estate relative to the S&P 500 SPX Index, + 1.18%, “with significantly higher exposure to these pro-cyclical sectors than mutual funds overall,” according to the note. Meanwhile, ESG funds have avoided growth-oriented communication services stocks, Bank of America found. Long-term fund investment managers have generally moved into value-oriented sectors, driving bets on financial and energy companies in recent months, while trimming weights to growth-oriented communication and technology services sectors. , according to BofA. Value stocks beat their growth counterpart in the first three months of 2021 after suffering a decade of ineptitude. For example, the Russell 1000 Value RLV fund, + 0.94% increased almost 12% in the first quarter, compared to a 2.4% gain for the Russell 1000 Growth RLG Index, + 1.59%, according to show the FactSet data. ESG funds may be poised to benefit from higher value turnover as they remain “significantly underweight” in energy and utilities even after increasing their exposure to these areas in recent months, the bank’s research notes show. . Weekend Reads: These Investments Can Help You Benefit From Biden‘s $ 2.3 Trillion Spending Plan Clean Energy Valuations Have Skyrocketed In Recent Years, And Renewables Have Risen Due To Investor Enthusiasm For The Future of the industry, according to JPMorgan Chase & Co JPM, + 0.97%. Renewables-focused ETFs have traded lower so far in 2021, but have enjoyed powerful gains in the past 12 months, with iShares Global Clean Energy’s ICLN ETF down -0.49% from 160 % in the year and Invesco Solar’s TAN ETF, -1.19% with a profitability close to 270% during the same period. “Towards the end of last year, the industry just went nuts,” Michael Cembalest, president of market and investment strategy at JP Morgan Asset Management, said in a telephone interview with MarketWatch on Friday. “There is a lot of speculation right now that the United States is on the verge of catching up” with Europe in terms of ESG, he said. Renewable stocks in areas such as electric vehicles, solar power, hydrogen and batteries have risen since 2019, according to a note from Cembalest’s JP Morgan Asset Management on April 1. renewable energy companies on their platforms and to give more access to people, ”he told MarketWatch on Friday. Cembalest added that “the SPAC market has expanded the opportunity for these companies to go public,” with a “disproportionate share of renewables” going public through mergers with special-purpose acquisition companies. “The energy sector, perhaps even more than technology, attracts futurists,” he said. “It is a sector that attracts a lot of people who envision massive secular changes taking place in short periods of time.” JP Morgan Asset Management believes that renewable stocks remain expensive even after the industry sell-off in January, according to Cembalest. “I’m tempted to wait a little longer,” he said of diving back into renewables. “There are some interesting opportunities here, but you really have to let the foam subside.” While President Joe Biden’s infrastructure plan will benefit from renewable energy, Cembalest hopes that some concessions will be made before a final bill passes in Congress. Many investors began to assess the impact of an infrastructure plan under the new administration as early as last year, but it is still too early to make assumptions, he said. Meanwhile, the US employment report on Friday noted that the economy could be on track for rapid expansion. The United States added 916,000 new jobs in March as restaurants and other businesses hired the most workers in seven months. The Labor Department said on Friday that official unemployment fell to 6%, from 6.2%, although economists estimate that real unemployment exceeds 9% after accounting for Americans who left the workforce after losing. their jobs last year. Read: US gains 916,000 new jobs in March and signals a strengthening economy A strengthening economy generally bodes well for value stocks, according to Cembalest. BofA strategists believe long-term fund managers may continue to rotate in value as “their biases toward the industrial, financial, energy and materials sectors remain below historical averages.” The recent surge in traditional oil and gas stocks, which were hit hard during the heyday of pandemic sales, reflects the recovery from COVID as power demand returned, as well as the turnover back in value, Cembalest said. . He still sees “advantages” in traditional energy and finance, but believes that “much of the easy money has already been made.” Within renewables, Cembalest said “there must be some discipline” and suggested that investors “check in” every six months on the expected “commercialization” of companies’ technologies. “Investors get sloppy with renewables,” he said.