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Dot-com Era Stock Valuations Bring Bubble Fears to ESG Funds
Bloomberg 1/26/2021
(Bloomberg) It’s reality-check time for ESG funds.
Exchange-traded funds investing in companies with responsible environmental, social and corporate governance practices lured a record $85 billion in the U.S. and Europe in 2020, and are still raking it in. Pumped up by the flows, stocks in many of these funds are trading at frothy price-to-earnings multiples that are increasingly hard to justify. Take U.S. fuel-cell maker Plug Power Inc., for instance. The unprofitable company’s more than 2,000% rally since early 2020 outpaces even Tesla Inc’s.
“There is a risk that holdings that populate ESG funds have become overvalued,” said Chris Dyer, director of global equity at Eaton Vance. “Investors both active and passive are increasingly chasing these themes and driving valuation to uncomfortable levels in some cases. This type of naïve investing tends to end badly.”
Dot-com era stock valuations bringing bubble fear to ESG funds
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Last Updated: Jan 26, 2021, 01:12 PM IST
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Synopsis
With the Nasdaq 100 trading near dot-com-era-high valuations of the early 2000s, the likes of Bank of America Corp. are floating warning balloons.
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NSE
It’s reality-check time for ESG funds.
Exchange-traded funds investing in companies with responsible environmental, social and corporate governance practices lured a record $85 billion in the U.S. and Europe in 2020, and are still raking it in. Pumped up by the flows, stocks in many of these funds are trading at frothy price-to-earnings multiples that are increasingly hard to justify. Take U.S. fuel-cell maker Plug Power Inc., for instance. The unprofitable company’s more than 2,000% rally since early 2020 outpaces even Tesla Inc’s.
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(Bloomberg) China is set to post the fastest growth in Asia for environmental, social and governance investments after the country boosted exchange-traded fund assets 18-fold in the past two years, according to estimates from Bloomberg Intelligence.China’s push for renewable energy and electric vehicles will spark more fund flows into ESG-related ETFs, contributing to a 20% growth in assets across Asia this year, according to BI analyst Esther Tsang.”We are seeing a surge there,” Tsang said. “China is going to dominate.”Even with the asset growth in the past two years, China only accounts for a little over 10% of Asian ESG ETF assets under management. Japan leads the pack, accounting for about 80% of the $40 billion in ESG funds that trade on exchanges. Asia lags behind North America and Europe, accounting for less than a fifth of the $218 billion in global ETFs in this sector, according to Bloomberg Intelligence estimates from Tsang and Adeline Diab.Stro
December 21, 2020
Investors are taking a shine to exchange traded funds that track socially responsible investments, like those based on environmental, social, and governance principles.
According to FactSet data, investors have funneled a record $27.4 billion in to ESG-related ETFs so far in 2020, doubling the size of the asset category, the Wall Street Journal reports.
The increased popularity of ESG-related ETFs has also reflected increased bets that the incoming President-elect Joe Biden could push for new legislation aimed at combating climate change, which will likely fuel demand for ESG funds over the years ahead.
In response to this higher demand for ESG investments, asset managers have also rolled out 31 ESG-related ETFs so far this year, almost double last year’s total and bringing the number of ESG-related ETFs in the U.S. to over 100, according to Elisabeth Kashner, director of ETF research at FactSet.