You’ve been reading about my concerns with ESG investing for a while now. Mutual Funds and ETFs that virtue signal about this stuff are taking their eye off the ball. If you’re in some of these fee gathering mutual funds/ETFs maybe it’s time to look for greener pastures. Andy Kessler writes in the WSJ:
Larry Fink, CEO of BlackRock, which has around $10 trillion in assets under management, wrote in a letter to CEOs, “We focus on sustainability not because we’re environmentalists, but because we are capitalists.”
Let’s look inside. BlackRock’s ESG Aware MSCI USA ETF has almost the same top holdings as its S&P 500 ETF with Apple, Microsoft, Amazon, Alphabet, Tesla, Nvidia, JP Morgan Chase, Johnson & Johnson and United Healthcare, dropping Berkshire Hathaway and moving Meta and Home Depot to higher weightings. Fees on ESG Aware are 0.15%, or 15 basis points. BlackRock’s plain-vanilla iShares Core S&P 500 ETF index fund charges only 3 basis points. That’s right, BlackRock charges five times as much for juggling a few names and slapping ESG on the name. Capitalists indeed. As of June 30, ESG Aware was down 23.7% vs. down 20% for the S&P 500 index.
Look away if you’re squeamish, but BlackRock helpfully notes that the S&P 500 has investments of 0.92% in controversial weapons, 0.59% in nuclear weapons, 0.68% in tobacco and 0.12% in United Nations Global Compact violators. Yikes. But not the BlackRock Sustainable Advantage Large Cap Core Fund, an actively managed fund with none of that icky stuff. On May 31 its top holdings were similar to the S&P 500 with lower weightings of Berkshire and UnitedHealth and increased weightings of Visa and Exxon. Exxon! Gross fees were 0.74% and net fees of 0.49% as BlackRock chooses to waive some fees. This fund was down 20.6% as of June 30.
So yes, you’re paying someone five to 15 times as much to adjust some weightings and perform worse. For BlackRock, ESG and sustainable investing don’t seem to be about responsible or socially just investing, they are simply a lucrative business model.