The Wall Street gold rush to take advantage of the desire of many investors to save the planet with their retirement portfolios has run into trouble. But BlackRock may have found a work-around.
As it turns out, self-styled ESG funds—those that claim they invest to advance environmental, social, and corporate governance goals—appear to earn poor returns, charge outsized fees, and invest in companies with worse environmental records than ordinary mutual funds.
Earning high fees for lower returns is a Wall Street dream come true. Investors seem willing, at least for now, to pay more for funds that make them feel better about how they invest their funds. In our age of Woke Capitalism, Wall Street’s vampire squids are eagerly plunging their money funnels into the virtue signaling desires of their customers.
Wanting to do good while also doing well is not exactly a new phenomenon. But the ESG world has a problem because its customers do not appear to be getting much on either side of that ledger. And when investors come around to noticing that, it could spell trouble.
BlackRock seems to have found an innovative way around the dilemma with its ESG funds: just invest in the big growth tech stocks.
“The top holdings in the U.S. Carbon Transition Readiness ETF (ticker LCTU) — which lured about $1.25 billion in its first day on Thursday — turn out to be Apple Inc., Microsoft Corp., Amazon.com Inc., Alphabet Inc. and Facebook Inc,” Bloomberg reports. “The same five companies, in the same order, are the top stakes in the largest environmental, social and governance ETF on the market, the $16.5 billion iShares ESG Aware MSCI USA ETF (ESGU). That’s also from BlackRock with a fee of 0.15%, half the price of LCTU.”
In short, you can buy the expensive new fund or the less-expensive older fund in order to acquire a portfolio of big tech stocks. Note: you can buy all these stocks yourself for no fees from almost any of the big discount brokerages. Of you can buy an ETF tracking the Nasdaq Composite—it will also have those five companies as its biggest holding.
Now it is probably true that these companies will do well if the Biden administration and its successors succeed in pushing us away from fossil fuels or carbon-heavy production in the U.S. They will be able to manufacture their hardware in countries—like China—with more generous carbon allowances while keeping their carbon footprint at home small because their services are largely digital. No one quite knows how much electric power is used up by Facebook or Microsoft customers using their products, but that doesn’t matter because that carbon footprint isn’t counted against the companies.
BlackRock explains that the similarity between a big tech fund and the climate or sustainability portfolio isn’t really a problem for their funds. They see it as a feature.
LCTU’s similarities to more mainstream indexes are intentional, according to Carolyn Weinberg, global head of product for iShares at BlackRock.
“It enables our clients to invest as a core part of their portfolio as opposed to a satellite aspect,” Carolyn Weinberg, global head of product for iShares at BlackRock, told Bloomberg. “They can build portfolios the way that they traditionally build portfolios, but substitute out the benchmark and add the sustainable or climate version.”
In other words: the solution to the dilemma is simply to treat Big Tech as ESG, likely securing decent returns and at least matching the market return, and then tack on smaller sustainability or climate change bets that might do well if the climate change alarmists get their way.