The Anti-ESG portfolio

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unclescrooge
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The Anti-ESG portfolio

Post by unclescrooge »

Is it possible to construct a global portfolio of stocks that are non-ESG using solely ETFs?

For example, I only want to invest in companies that pollute our oceans, sell drugs, weapons, tobacco and alcohol, mistreat or underpay their employees, try to cheat their employees out of health care, are always fighting discrimination lawsuits, etc.

It's not that I support these actions in anyway, but with the large push towards ESG investing, it seems those companies will get overbid and overvalued, resulting in lower long term returns.

So I'd like to actively exclude them and construct a portfolio around this.
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Re: The Anti-ESG portfolio

Post by 000 »

unclescrooge wrote: Mon Nov 23, 2020 5:38 pm Is it possible to construct a global portfolio of stocks that are non-ESG using solely ETFs?

For example, I only want to invest in companies that pollute our oceans, sell drugs, weapons, tobacco and alcohol, mistreat or underpay their employees, try to cheat their employees out of health care, are always fighting discrimination lawsuits, etc.
I haven't seen any Thematic ETFs that meet your criteria. Why not just build your own index of these companies?
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Re: The Anti-ESG portfolio

Post by Dottie57 »

Total stock should have plenty of anti esg stocks.
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Re: The Anti-ESG portfolio

Post by SmileyFace »

I laughed out loud reading your post and then realized you were (maybe?) serious. And giving it some thought you might actually make a killing on this idea!
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Re: The Anti-ESG portfolio

Post by retire2022 »

unclescrooge

You want a "Sin fund" https://www.investopedia.com/terms/s/sinfulstock.asp

-casinos
-Military
-oil guns
-sex
-pot stocks
-stem cell research bio tech for those who are anti religious
-Alcohol
-candy companies (obesity) which includes soda companies and snack goods
-fast food
-Walmart (don't support women employees for pay parity)
-Koch industries, not publicly traded but they invest in plastic & spandex.
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Monster99
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Re: The Anti-ESG portfolio

Post by Monster99 »

I believe you want VICEX - not sure if they have a ETF ..... it has a very high expense ratio (1.7%).... ouch!
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DDubya
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Re: The Anti-ESG portfolio

Post by DDubya »

See the Vitium Global Fund (VICEX). Previously it was named the Vice Fund.
Recently James Grant interviewed the fund manager on podcast "Current Yield" the Interest Rate Observer of the Air.
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Re: The Anti-ESG portfolio

Post by unclescrooge »

Monster99 wrote: Mon Nov 23, 2020 6:08 pm I believe you want VICEX - not sure if they have a ETF ..... it has a very high expense ratio (1.7%).... ouch!
DDubya wrote: Mon Nov 23, 2020 6:11 pm See the Vitium Global Fund (VICEX). Previously it was named the Vice Fund.
Recently James Grant interviewed the fund manager on podcast "Current Yield" the Interest Rate Observer of the Air.
VICEX is insanely expensive for what it provides. This shouldn't cost more than 0.5%.

There is a VICE ETF, but at an ER of 0.99%, it's also expensive.
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Re: The Anti-ESG portfolio

Post by arcticpineapplecorp. »

i was going to mention the vice fund.

but here's the thing(s):

1. to stray from the market (in either direction, esg OR NOT) is to assume that you know more/better than the market.
2. do you?
3. could you be wrong with such a strategy?
4. if you've thought of this strategy, haven't others too?
5. If so, isn't that knowledge/assumption already baked into the market and/or the prices of stocks for which you seek?
6. is it possible for the anti esg companies to be beaten down then or might they be valued according to all available information to all investors all the time?
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Re: The Anti-ESG portfolio

Post by Broken Man 1999 »

unclescrooge wrote: Mon Nov 23, 2020 5:38 pm Is it possible to construct a global portfolio of stocks that are non-ESG using solely ETFs?

For example, I only want to invest in companies that pollute our oceans, sell drugs, weapons, tobacco and alcohol, mistreat or underpay their employees, try to cheat their employees out of health care, are always fighting discrimination lawsuits, etc.

It's not that I support these actions in anyway, but with the large push towards ESG investing, it seems those companies will get overbid and overvalued, resulting in lower long term returns.

So I'd like to actively exclude them and construct a portfolio around this.
Years ago when the states were settling suits with the tobacco companies, Philip Morris was beaten down pretty badly. I bought some, figuring since the states had turned the tobacco companies into cash cows, they weren't going to hurt the companies so much that the income streams would be affected. I made a nice chunk of change on that buy.

unclescrooge, your play might work out similarly to mine. I would caution you to wait, however, as the squeeze hasn't been put on these companies yet. But, it will come. No doubt in my mind.

Broken Man 1999
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Re: The Anti-ESG portfolio

Post by unclescrooge »

retire2022 wrote: Mon Nov 23, 2020 6:01 pm unclescrooge

You want a "Sin fund" https://www.investopedia.com/terms/s/sinfulstock.asp

-casinos
-Military
-oil guns
-sex
-pot stocks
-stem cell research bio tech for those who are anti religious
-Alcohol
-candy companies (obesity) which includes soda companies and snack goods
-fast food
-Walmart (don't support women employees for pay parity)
-Koch industries, not publicly traded but they invest in plastic & spandex.
These are great examples!

Some of the most popular stocks that feature in the SP500 index like Coke, Walmart, Amazon, Facebook would all be represented here in addition to Altria, Diageo, RCI Hospitality, and Smith & Wesson.

Maybe I should just short ESG stocks instead - the list might be a lot shorter :mrgreen:
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Re: The Anti-ESG portfolio

Post by Impatience »

You’re right, according to well-established financial theory the rising popularity of ESG investing should increase the returns of holding “anti-ESG” stocks because they will grow relatively underpriced.

However there’s no telling by how much, and that difficult-to-quantify increase will probably be dwarfed by other factors. For example, decreased spending at those companies by governments or consumers, increased regulatory burden, or poor management at those companies due to them being less appealing to talent. All of these factors and more can upend your strategy.
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Re: The Anti-ESG portfolio

Post by unclescrooge »

Broken Man 1999 wrote: Mon Nov 23, 2020 6:18 pm
unclescrooge wrote: Mon Nov 23, 2020 5:38 pm Is it possible to construct a global portfolio of stocks that are non-ESG using solely ETFs?

For example, I only want to invest in companies that pollute our oceans, sell drugs, weapons, tobacco and alcohol, mistreat or underpay their employees, try to cheat their employees out of health care, are always fighting discrimination lawsuits, etc.

It's not that I support these actions in anyway, but with the large push towards ESG investing, it seems those companies will get overbid and overvalued, resulting in lower long term returns.

So I'd like to actively exclude them and construct a portfolio around this.
Years ago when the states were settling suits with the tobacco companies, Philip Morris was beaten down pretty badly. I bought some, figuring since the states had turned the tobacco companies into cash cows, they weren't going to hurt the companies so much that the income streams would be affected. I made a nice chunk of change on that buy.

unclescrooge, your play might work out similarly to mine. I would caution you to wait, however, as the squeeze hasn't been put on these companies yet. But, it will come. No doubt in my mind.

Broken Man 1999
I remember those days - probably around 20 years ago when Phillip Morris had a yield of 13%. I almost bought it, but instead held on my tech stocks and watch them all go out of business. :oops:

Good thing I was young and poor!
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Re: The Anti-ESG portfolio

Post by unclescrooge »

arcticpineapplecorp. wrote: Mon Nov 23, 2020 6:17 pm i was going to mention the vice fund.

but here's the thing(s):

1. to stray from the market (in either direction, esg OR NOT) is to assume that you know more/better than the market.
2. do you?
3. could you be wrong with such a strategy?
4. if you've thought of this strategy, haven't others too?
5. If so, isn't that knowledge/assumption already baked into the market and/or the prices of stocks for which you seek?
6. is it possible for the anti esg companies to be beaten down then or might they be valued according to all available information to all investors all the time?
Very valid points!

Based on the valuations of companies in low-vol/high-growth strategies it appears the market is favoring those over anti-ESG.

But I frequently make directional bets based on valuation and at least in the past 15 years those have mostly gone my way. Although whether the juice is worth the squeeze is debatable.

But I see your point and I mostly agree.
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Re: The Anti-ESG portfolio

Post by unclescrooge »

SmileyFace wrote: Mon Nov 23, 2020 5:54 pm I laughed out loud reading your post and then realized you were (maybe?) serious. And giving it some thought you might actually make a killing on this idea!
It started as a being tongue-in-cheek but i think the idea has merit. The question is whether it can be implemented in a cost/tax efficient manner.
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Re: The Anti-ESG portfolio

Post by retire2022 »

unclescrooge wrote: Mon Nov 23, 2020 6:27 pm
SmileyFace wrote: Mon Nov 23, 2020 5:54 pm I laughed out loud reading your post and then realized you were (maybe?) serious. And giving it some thought you might actually make a killing on this idea!
It started as a being tongue-in-cheek but i think the idea has merit. The question is whether it can be implemented in a cost/tax efficient manner.
SP500 and VTI/VTSAX has all of the sin industries you have already laid out.

check this out Dr Bonnor's was lobbyist behind Cannabis legislation and magic mushroom passage in Oregon

https://www.thedailybeast.com/covid-19- ... galization
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Re: The Anti-ESG portfolio

Post by SmileyFace »

retire2022 wrote: Mon Nov 23, 2020 6:30 pm
unclescrooge wrote: Mon Nov 23, 2020 6:27 pm
SmileyFace wrote: Mon Nov 23, 2020 5:54 pm I laughed out loud reading your post and then realized you were (maybe?) serious. And giving it some thought you might actually make a killing on this idea!
It started as a being tongue-in-cheek but i think the idea has merit. The question is whether it can be implemented in a cost/tax efficient manner.
SP500 and VTI/VTSAX has all of the sin industries you have already laid out.

check this out Dr Bonnor's was lobbyist behind Cannabis legislation and magic mushroom passage in Oregon

https://www.thedailybeast.com/covid-19- ... galization
But there are also good and not-quite-so-bad companies in the SP500 (and VTI) too. Want those out of the investment.
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Re: The Anti-ESG portfolio

Post by goodenyou »

Why not figure out a way to short an ESG ETF?
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Re: The Anti-ESG portfolio

Post by Dontridetheindexdown »

We own exactly 3 stocks = 50% of our invested assets.

They are best-in-class tobacco, integrated energy, and telecom firms (held in Roth and taxable).

We observe over decades, in good times and bad times, people smoke, fuel their vehicles, and talk on their cell phones, often all at the same time.

We search continuously, and we find no indicators that this situation will change significantly during our lifetimes.

The other 50% of our assets are invested in TSP G Fund, and Vanguard Treasury Money Market Fund (held in tax-deferred and taxable).

We observe that no country has ever gone bankrupt that issued debt denominated in their own currency.

We sleep well at night.

The formula for success : live below your means, invest assiduously, and commit to an asset allocation you can live with at all times!

As always, your mileage may vary.
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Re: The Anti-ESG portfolio

Post by AlwaysLearningMore »

An investor so inclined could consider cobbling together the following:

As previously mentioned, VICEX: https://tinyurl.com/y5w6a9qw
Vanguard's own Energy Fund ETF VDE https://tinyurl.com/y5f7295d
Marijuana ETF MJ: https://tinyurl.com/y3ttyvkw
iShares U.S. Aerospace & Defense ETF https://tinyurl.com/yy7b5kln

(I would not recommend holding any of these)
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Re: The Anti-ESG portfolio

Post by celia »

I googled and found this interesting. It may impact investing overall:
investopedia wrote: The U.S. Department of Labor released a new regulation in late October 2020 that may limit or eliminate socially responsible investing in retirement plans. While the rule was revised to remove explicit references to environmental, social, and governance (ESG) factors, it mandates that fiduciaries of retirement plans choose investment strategies based entirely on how those strategies affect financial performance. This ruling may have a significant impact on funds and investments classified under ESG and socially responsible investing.
https://www.investopedia.com/terms/e/en ... iteria.asp
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Re: The Anti-ESG portfolio

Post by annu »

I hear Oil is severely undervalued and not being looked at as much as it should and so are cigarette stocks
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Re: The Anti-ESG portfolio

Post by unclescrooge »

AlwaysLearningMore wrote: Mon Nov 23, 2020 8:04 pm An investor so inclined could consider cobbling together the following:

As previously mentioned, VICEX: https://tinyurl.com/y5w6a9qw
Vanguard's own Energy Fund ETF VDE https://tinyurl.com/y5f7295d
Marijuana ETF MJ: https://tinyurl.com/y3ttyvkw
iShares U.S. Aerospace & Defense ETF https://tinyurl.com/yy7b5kln

(I would not recommend holding any of these)
One would have to exclude the marijuana etf. The use has been banned more due to political reasons, and less because it's really bad for you. So I wouldn't include it as an anti-ESG.
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Re: The Anti-ESG portfolio

Post by retiringwhen »

The only individual stocks I own today act as a counter balance to the ESG crowd. I own them for ideological reasons not financial. IOW, I firmly believe in the businesses and want to be part of the outcome by ensuring they have access to capital.
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Re: The Anti-ESG portfolio

Post by JBTX »

Buy total market, short ESG.
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Re: The Anti-ESG portfolio

Post by unclescrooge »

JBTX wrote: Mon Nov 23, 2020 10:58 pm Buy total market, short ESG.
That's the conclusion I'm coming to :beer
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Re: The Anti-ESG portfolio

Post by JoMoney »

From a cursory look at the top 25 holdings of iShares ESG MSCI USA Leaders ETF (SUSL)
and comparing it to the the top 25 holdings of Vanguard Total Stock Market
It looks like the stocks you might want a high weighting in:
Amazon.com Inc
Apple Inc
AT&T Inc
Berkshire Hathaway Inc Class B
Facebook Inc A
JPMorgan Chase & Co
Netflix Inc
PayPal Holdings Inc
Pfizer Inc
UnitedHealth Group Inc
Walmart Inc
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Re: The Anti-ESG portfolio

Post by occambogle »

Not sure if the OP is serious but as others mentined VICEX looks to be indicative of those fields, also VICE ETF. Their performance has sucked, below that of S&P500, while clean energy has rocketed:

https://stockcharts.com/h-perf/ui?s=VIC ... 8245973324

I guess one person's "overbid and overvalued" is another person's choice to invest in companies with significant likely future growth.
Last edited by occambogle on Tue Nov 24, 2020 8:23 am, edited 1 time in total.
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Re: The Anti-ESG portfolio

Post by aristotelian »

I think the cheapest way to do this would be to use an energy ETF like VDE and then build around it with stocks or ETF's for the other sin industries. If you think sin stocks consistently outperform the total market and/or non-sin stocks, think again. VDE has done terribly over the last 1, 3, 5, 10, and 15 years. If I were to adopt this strategy - which I absolutely am not - I would not want a high fee drag further holding me back (VICEX ER 1.49%).
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Re: The Anti-ESG portfolio

Post by backpacker61 »

SmileyFace wrote: Mon Nov 23, 2020 5:54 pm I laughed out loud reading your post and then realized you were (maybe?) serious. And giving it some thought you might actually make a killing on this idea!
+1

Dang; great minds think alike.
I would add to that:
weed
porn
distilled spirits
tobacco
companies that do business in/with Israel
gambling
fossil fuels
correctional facility REITS (CXW, GEO)

lots of possibilities!

Now I'll take a pull on my cigar, sit back, and enjoy the show :beer
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Re: The Anti-ESG portfolio

Post by pancake19 »

I assume this is a serious question but I'm not seeing anyone posting here actually address the issue with this train of thought: that inflows in, for example, green energy companies do not mean outflows from oil and gas companies. This is a conceptual "balance" that I have not seen any evidence for, nor does it feel logical.

If you are trying to do this the answer is actually quite simple, you should be buying the lowest ESG score within each sector rather than trying to buy alcohol and tobacco... ESG scores are widely available now from a variety of analytics firms, including right on yahoo finance.
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Re: The Anti-ESG portfolio

Post by nisiprius »

No wonder ESNG, the The Direxion MSCI USA ESG – Leaders vs. Laggards ETF, is on the ETF Deathwatch: they have it exactly the wrong way around. Otherwise it would be exactly what you want.
The Direxion MSCI USA ESG – Leaders vs. Laggards ETF aims to deliver a unique approach to ESG investing that is long and overweight companies with high ESG ratings and is short those with low ESG ratings.
However, the "wrong way around" has in fact beaten the market during the few months since its inception in 2/2020.
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Re: The Anti-ESG portfolio

Post by nolesrule »

Pretty much any company will meet one or more of the non-ESG criteria, including so-called ESG companies. Therefore a Total Market index will do nicely.
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Re: The Anti-ESG portfolio

Post by mak1277 »

Here's the problem with so-called "ESG" companies & funds...the criteria for inclusion is often based simply on disclosure. So if you have one company that does bad things, but is wholly transparent in their disclosures about "ESG practices", they will be rated better than a company who doesn't do anything bad but also doesn't disclose. The ESG raters are only just starting to be able to parse the data that is being disclosed, but there's no standard framework so everyone discloses different things. The whole ESG industry is an opaque mess right now until a standard set of disclosures is adopted.
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Re: The Anti-ESG portfolio

Post by humblecoder »

unclescrooge wrote: Mon Nov 23, 2020 5:38 pm Is it possible to construct a global portfolio of stocks that are non-ESG using solely ETFs?

For example, I only want to invest in companies that pollute our oceans, sell drugs, weapons, tobacco and alcohol, mistreat or underpay their employees, try to cheat their employees out of health care, are always fighting discrimination lawsuits, etc.

It's not that I support these actions in anyway, but with the large push towards ESG investing, it seems those companies will get overbid and overvalued, resulting in lower long term returns.

So I'd like to actively exclude them and construct a portfolio around this.
Not sure if that would work. There are enough investors with supercomputers and fast networks who can immediately take advantage of arbitrage opportunities should a stock stray too far from its proper valuation. Retail investors like you and I don't stand a chance. That's the whole reason why BH's recommend index funds / buying the market (Efficent Market Hypothesis)
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Re: The Anti-ESG portfolio

Post by nedsaid »

unclescrooge wrote: Mon Nov 23, 2020 5:38 pm Is it possible to construct a global portfolio of stocks that are non-ESG using solely ETFs?

For example, I only want to invest in companies that pollute our oceans, sell drugs, weapons, tobacco and alcohol, mistreat or underpay their employees, try to cheat their employees out of health care, are always fighting discrimination lawsuits, etc.

It's not that I support these actions in anyway, but with the large push towards ESG investing, it seems those companies will get overbid and overvalued, resulting in lower long term returns.

So I'd like to actively exclude them and construct a portfolio around this.
Once upon a time, in a land far away, there existed a Vice Fund with the ticker symbol VICEX. It is now called Vitium Global Fund.
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Re: The Anti-ESG portfolio

Post by unclescrooge »

nisiprius wrote: Tue Nov 24, 2020 9:01 am No wonder ESNG, the The Direxion MSCI USA ESG – Leaders vs. Laggards ETF, is on the ETF Deathwatch: they have it exactly the wrong way around. Otherwise it would be exactly what you want.
The Direxion MSCI USA ESG – Leaders vs. Laggards ETF aims to deliver a unique approach to ESG investing that is long and overweight companies with high ESG ratings and is short those with low ESG ratings.
However, the "wrong way around" has in fact beaten the market during the few months since its inception in 2/2020.
Maybe I could just short it! :mrgreen:
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Re: The Anti-ESG portfolio

Post by asset_chaos »

unclescrooge wrote: Mon Nov 23, 2020 5:38 pm ... but with the large push towards ESG investing, it seems those companies will get overbid and overvalued, resulting in lower long term returns.

So I'd like to actively exclude them and construct a portfolio around this.
If the thesis turns out to be correct, wouldn't all the companies you want start to populate value indices? There would be other value companies too, but if the thesis is correct, just a plain vanilla value index fund may become home to a lot of the so-called sin stocks.
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Re: The Anti-ESG portfolio

Post by quantAndHold »

Broken Man 1999 wrote: Mon Nov 23, 2020 6:18 pm
unclescrooge wrote: Mon Nov 23, 2020 5:38 pm Is it possible to construct a global portfolio of stocks that are non-ESG using solely ETFs?

For example, I only want to invest in companies that pollute our oceans, sell drugs, weapons, tobacco and alcohol, mistreat or underpay their employees, try to cheat their employees out of health care, are always fighting discrimination lawsuits, etc.

It's not that I support these actions in anyway, but with the large push towards ESG investing, it seems those companies will get overbid and overvalued, resulting in lower long term returns.

So I'd like to actively exclude them and construct a portfolio around this.
Years ago when the states were settling suits with the tobacco companies, Philip Morris was beaten down pretty badly. I bought some, figuring since the states had turned the tobacco companies into cash cows, they weren't going to hurt the companies so much that the income streams would be affected. I made a nice chunk of change on that buy.

unclescrooge, your play might work out similarly to mine. I would caution you to wait, however, as the squeeze hasn't been put on these companies yet. But, it will come. No doubt in my mind.

Broken Man 1999
Yes,I was going to say similar. I’m retired today not because of anything I did myself, but because my dad had a large position in Philip Morris. And an oil well. Both did about equally well.
Yes, I’m really that pedantic.
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Re: The Anti-ESG portfolio

Post by LFS1234 »

Broken Man 1999 wrote: Mon Nov 23, 2020 6:18 pm
unclescrooge wrote: Mon Nov 23, 2020 5:38 pm ... companies that pollute our oceans, sell drugs, weapons, tobacco and alcohol, mistreat or underpay their employees, try to cheat their employees out of health care, are always fighting discrimination lawsuits, etc.
... I would caution you to wait, however, as the squeeze hasn't been put on these companies yet. But, it will come. No doubt in my mind.
These companies do not all face the same risks.

Since times immemorial, monarchs have known that serious shortages of bread or beer can result in regime change, and have avoided such shortages at all costs. Most societies have figured out that tobacco and alcohol best are dealt with through restrictions on when and where they can be used as well as through "sin taxes"; not through absolute prohibition. Tobacco and alcohol producers have prospered under these restrictions. I don't see any reason to expect a different path in the near future.

Many of the businesses that the ESG folks disdain provide products that people want and need, and those businesses will do fine. To the extent that adjustments need to be made in order to deal with environmental concerns and other externalities, the costs of addressing these will be passed on to the end users. We're not going to shut down our petrochemical businesses or any other strategically important businesses merely because some ESG bureaucracy pronounces them undesirable. The cons of relying on foreign imports for vital goods have recently been relearned and will not soon be forgotten by the body politic.

As for companies that treat their employees poorly, these companies often aren't worth investing in in any case. Perhaps their margins are so abysmal that they cannot afford to treat their employees decently, or their upper management behaves so egregiously that all employees with other options leave. These won't be survivors in a world where there is a benefit to being "the fittest".

I suspect that unclescrooge is on to something. The ESG chorus has reached a crescendo and it is striking that many (all?) of the big active fund managers are pushing ESG funds as diligently as they can. These active managers have lost a ton of business to people who figured out that costs matter. So it seems to me that part of the ESG hope is that those who have left the active managers will come back when their expensive actively managed funds are repackaged as being "socially conscious".

Happy investing!
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Re: The Anti-ESG portfolio

Post by totality »

I'd be careful with this. If a lot of money flows into ESG funds, ESG stocks will have higher apparent return due to the price being bid up. How long will you be willing to be "right" as your portfolio under-performs a market-cap index year after year?
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