- RBC’s analysis of ESG hedge funds found that in the second quarter, they bought stocks that had been winners during the March sell-off — and turned out to be winners in the subsequent rally.
- The stocks that were added by the largest number of socially conscious funds also outperformed during the market’s September slump.
- Since they beat the market during its three most notable and recent phases, those 20 stocks have delivered outstanding relative returns, according to strategist Sara Mahaffy.
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Going green is helping hedge funds make green right now.
That’s the conclusion of a team lead by RBC Strategist Sara Mahaffy. After poring over the holdings of both traditional and environmental, social, and governance-focused hedge funds, she writes that the stocks ESG funds liked the best in the second quarter are pulling off a difficult trifecta in 2020.
They fared very well during the two major sell-offs of the year — they outperformed during the coronavirus crash in February and March, beat the market dramatically during the March-through-September rally, and stayed above water during the slump that overtook the market after its record high on September 2.
Since then the S&P 500 has dropped 6.1%, and the tech-heavy Nasdaq endured a 10% correction. The bulk of ESG hedge funds’ new picks fared better. Overall, their 2020 relative return compared to the S&P 500 stood at 11.7% on September 25.
It’s been part of a good run of stock-picking for ESG funds, as Mahaffy also notes that stocks popular with those funds but less-liked by traditional hedge funds are also significant winners.
“Names that are only popular in sustainable funds outperformed,” Mahaffy wrote, adding that the stocks aren’t especially expensive based on longer-term price metrics. “Names that are only popular in sustainable funds are still trading below their early 2020 highs, though they have been inching up slowly in recent months.”
The following stocks were bought by the largest number of actively managed fundamental hedge funds during the second quarter, when the market was on the comeback trail following the February-March drop.
They’re ranked from lowest to highest based on their relative return during September’s slump — the period stretching from its latest record close on September 2 through the end of trading on September 25.