In recent years, ESG issues have come to the fore. Tobacco companies talk about "building a better tomorrow", coal-fired power plant operators want to provide "energy for a sustainable life" and mine operators see themselves in a "key role to play in the global transition to a low carbon economy".
At the same time, large parts of the fund industry have also repositioned themselves. Many funds promote themselves as "sustainable", meaning primarily environmental and social sustainability, not financial sustainability.
Exclusion criteria are an important pillar of the investment strategy of such funds. Investments in tobacco, cannabis, alcohol, nuclear and fossil energy, defence and mining, for example, are usually excluded entirely or to a large extent.
However, with the exclusion of large parts of solid and substantial companies from the investment universe, it becomes difficult to establish a high-yield portfolio; many investment opportunities remain on the left. Therefore, with the increasing ESG focus of fund providers, investors have begun to explicitly ask for funds that do not observe ESG criteria.
In this context, so-called anti-ESG funds (also: non-ESG funds or sin funds) have become established. But what exactly are anti-ESG funds?
Definition "Anti-ESG Fund"
"Anti" means to be against or to have an opposing attitude towards a person or thing. If this is applied to funds, the following definition would be appropriate:
An anti-ESG fund is a fund whose investment strategy is designed to specifically invest in companies that are typically excluded by ESG funds (e.g. tobacco, cannabis, oil, coal, defence, gambling).
The essential feature of the anti-ESG fund (also: non-ESG fund or sin fund) is the targeted investment in anti-ESG companies. The investment strategy is regularly designed to target sectors such as tobacco, alcohol, defence and fossil energy.
Anti-ESG funds are not funds that select according to purely financial criteria, and as a result of this selection only focus on so-called anti-ESG sectors. This is because they are free in their investment strategy and can also invest in typical ESG stocks if it proves to be a sensible investment.
Anti-ESG Funds on the US Market
In the USA, the following two anti-ESG funds, among others, are offered. However, these are not available to German investors.
B.A.D. ETF by BAD Investments
Vice Fund by USA Mutuals
The B.A.D. ETF from BAD Investments is a US fund launched at the end of 2021. Its investment strategy is to track the EQM BAD Index. The index includes US companies from the sectors: Betting, Alcohol, Cannabis and Medicines (Pharmaceuticals and Biotechnology). The fund's asset manager bills himself as hip: "we don't think like a typical suit and we sure as hell don't dress like one."
USA Mutual's Vice Fund is also a US fund and was initiated in mid-2021. Unlike the B.A.D. ETF, it is an actively managed fund and also has a broader investment spectrum. The Vice Fund (in German: Sündenfonds) invests globally in companies from the defence, gambling, tobacco and alcohol sectors. According to the fund, these industries have outlasted centuries due to their fundamental strengths.
Is the Hard Value Fund an Anti-ESG Fund?
The Hard Value Fund of van Grunsteyn (unit class R dist. - ISIN: DE000A3D1ZP1) (marketing communication) is a German equity fund that has set financial sustainability as its maxim. The fund invests value-free in order to continuously generate good returns and to protect investors' wealth. Value-free means that typical ESG stocks can be as important components of the portfolio as, for example, the tobacco, cannabis, defence, nuclear, fossil energy and mining sectors.
Asset management uses various analytical methods to identify companies with substance, healthy cash flow and high and steady dividends. Based on these analyses, the fund currently allocates mainly to areas in which ESG funds are not allowed to invest. This is because many stocks with good valuations are currently to be found here.
Patrick Grewe, Asset Manager: "We see the main reason for the positive valuation levels of our current core areas as the investment industry's strong focus on ESG issues, which has been ongoing for many years. This has led to large capital movements away from sectors such as tobacco or defence. In fundamental terms, we don't think this is justified at all."
The Hard Value Fund is not an anti-ESG fund. This is because asset management is free to allocate independently of ESG criteria. Should the outlook deteriorate in the tobacco or defence sectors in the future, for example, the fund could reduce the weighting or no longer invest in these sectors at all.
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