[Advice needed] Reallocate global ESG index funds now?

[norjon]

TL;DR: ESG-heavy global index funds are suffering worse than the equivalent NON ESG-heavy funds when the world is in turmoil. Reallocate now, or wait for calmer waters before doing anything?

This is my first post ever. I’ve tried to make it as short and concise as possible while still providing enough context and information. Hope you can bear with me :)

My strategy for a long time has been to buy and hold global index funds. For many years I was exclusively buying one index fund that tracks “MSCI World Developed Markets” (lets call it the “non ESG fund”)

Then I wanted to be “more green” and help save the planet I guess. So I kept all my current investments in the non ESG fund, but started buying another fund from the same provider that tracks the same index, but has a much higher ESG-rating and excludes many of the companies included in the first fund, e.g. fossil fuels. (let’s call it the “ESG fund”).

So these two funds are very similar and only separated by the ESG-heavy strategy of the latter

My allocation is now roughly:
-40% non ESG fund
-60% ESG fund
= In total about 1M USD

But as the years have past and you get new information, it may seem that this very aggressive ESG strategy might be somewhat of a hype. Also, it provides me much poorer diversification. The risk/reward balance is off VS the other fund. So I’m looking into scrapping this idea and move investments in the ESG fund back to the non ESG fund.

But, for the latest years and turmoils of the world, the non ESG fund has outperformed the ESG fund quite heavily. 3 years = 9%, 1 year = 6%

So, what are people thoughts in general, and particularly when to make this move (if making this move at all)? I know this can come off as an attempt to “time the market”, which I know you can forget about. But MMM routinely talks about stocks and funds being “on sale” in bad times, which makes sense to me. So am I to view this as the ESG fund being on even “better sale” than the non ESG fund (6% better “sale” the latest year alone). And so the timing for making the above mentioned reallocation is very bad right now.

What would you do? Reallocate now? Wait for the world to calm down and reallocate then? Or do nothing at all. Any thoughts and help would be nothing short of awesome!

PS: I know greediness is playing with my head also, as it hurts seeing the horse I didn’t bet on outperform the other and its’ getting worse day by day.
PPS: both funds have decent ESG ratings, but one is much more heavy in this domain.

[EverythingisNew]

If the reallocation is very similar funds I do it quickly in a big move. If the reallocation is switch from stocks to bonds/short term, I do it slowly in little moves and “time” the market. Are there any tax implications for your move?

[norjon]

If the reallocation is very similar funds I do it quickly in a big move. If the reallocation is switch from stocks to bonds/short term, I do it slowly in little moves and “time” the market. Are there any tax implications for your move?

Ty for replying! No tax implications. The funds are very similar as they both are global stock index funds that is both tracking the same index (MSCI World Developed Markets). BUT, the big difference between them is that one of them is very ESG-heavy(zero/low fossile, weapons, etc). And that one has been suffering much harder lately due to the state of the world(assumption). So the burning question I have is: although both funds will eventually rebounce, is it reasonable to expect the worst performing ESG-heavy fund to rebounce even harder. If thats the case, it would be foolish to reallocate now, as I then would basically sell on the "bottom".

I realise I'm almost answering my own question, but I might be dead wrong in my rationale and assumptions here.

[wageslave23]

Forget that you own either one. What would you recommend to someone with $1 million looking to invest? Then do that. The past is a sunk cost, disregard it and approach your current situation with your clear preference for non ESG,  in other words do what everyone else recommends and don't stock pick. Invest in the total market not just ones that are labeled green. I guarantee every company does things you don't agree with.

[norjon]

You're right wageslave23. Missing out on $50K+ for not doing my homework and picking the wrong fund, it's a pill to swallow. But that's the way it is. Digging into this also made me realise I'm missing some exposure to emerging markets and small cap too, in order to capture the total market. So I have the chance to get everything weighted and in shape now.

But from what you are saying, I guess the general consensus in here is that these "extra green" funds were, and still are, a fad?

Thanks!

[wageslave23]

You're right wageslave23. Missing out on $50K+ for not doing my homework and picking the wrong fund, it's a pill to swallow. But that's the way it is. Digging into this also made me realise I'm missing some exposure to emerging markets and small cap too, in order to capture the total market. So I have the chance to get everything weighted and in shape now.

But from what you are saying, I guess the general consensus in here is that these "extra green" funds were, and still are, a fad?

Thanks!

They may or may not be a good idea. But it's a form of stock picking and unless you know better than the people who spend their whole lives working and studying the stock market, you're better off investing in the total market.

[norjon]

I totally get what you are saying. Super, thanks for enlightening me. Cheers

[lutorm]

When you chose to invest in the ESG fund, did you do it because you were morally opposed to owning "bad" companies, or did you simply expect a greater return?

If the former, has that feeling changed? If so, as people say, just sell and invest according to your new investment policy. But if not, then you're just panicking because your chosen investments are dropping. That amounts to market timing, so then you shouldn't sell.

If the latter, maybe that was a bit naive? After all, if the ESG stocks were the most likely to perform best, then there wouldn't be a separate category for them.

My personal feelings on owning ESG stocks is that I think it's the wrong end of approaching the problem. As long as people are e.g. buying fossil fuel, I might as well get some return from the fact that the planet is being ruined. After all, me not buying them does nothing to lower fossil fuel use. What lowers fossil fuel use is a) people choosing to not consume it, or b) regulations preventing people from doing so. So rather than investing in ESG stocks, I try to lower my carbon footprint and vote for regulations and policy that works to solve the problem.

[FLBiker]

My personal feelings on owning ESG stocks is that I think it's the wrong end of approaching the problem. As long as people are e.g. buying fossil fuel, I might as well get some return from the fact that the planet is being ruined. After all, me not buying them does nothing to lower fossil fuel use. What lowers fossil fuel use is a) people choosing to not consume it, or b) regulations preventing people from doing so. So rather than investing in ESG stocks, I try to lower my carbon footprint and vote for regulations and policy that works to solve the problem.

I feel similarly.  In addition, I find that many of the "good" ESG stocks are things like Apple, Amazon, Meta, etc. that are not (IMHO) unambiguously better for the planet than other companies.

[Cawl]

Abandon the ESG.