In this article, we discuss the 10 top hedge funds focusing on ESG and impact investing.
The environmental, social, and corporate governance (ESG) movement has forced big finance to recalibrate priorities around impact investing in the past few years. Hedge funds, one of the last to the ESG party, have recently also started incorporating ESG and impact considerations into their decision-making process for new ventures. According to Morningstar, a financial services company based in Chicago, this shift led to investors pouring close to $21 billion into ESG-focused funds in 2019, a number that represented a 400% year-on-year increase.
In 2020, the net inflows into sustainable funds increased to over $50 billion, the financial services company revealed in a report published earlier this year. Another statistic highlighted by Morningstar to capture the impact of ESG-focused funds on the market was the overall net flows into stocks and mutual funds in the United States last year, with one-fourth of the total net flows accounted for by sustainable funds. Some of the biggest funds that are part of this process and their top holdings are discussed in detail below.
These top holdings include Alphabet Inc. (NASDAQ: GOOG), Citigroup Inc. (NYSE: C), and Cisco Systems, Inc. (NASDAQ: CSCO), among others. The business world is also starting to warm up to ESG and impact investing, partly because it is becoming harder to attract investors without responsible practices while also maintaining a business that does not care for the environment. According to a survey by BAML, 90% of bankruptcies in the S&P 500 between 2005-2015 were of companies with poor ESG scores five years prior to the bankruptcies.
The market tilt towards ESG and the importance placed on making environmental concerns central to the working of large corporations is reflected in the recent struggle for board seats at Exxon Mobil Corporation (NYSE: XOM), the Texas-based energy firm with a market cap of over $255 billion. On May 27, news publication Bloomberg reported that Engine No. 1 LLC, a small hedge fund with just over $250 million in assets under management and a 0.02% stake in the energy giant, had won at least two board seats at Exxon Mobil Corporation (NYSE: XOM).
The seats were won at an annual shareholder meeting held in late May. Engine No. 1 LLC has pledged to diversify the oil company and incorporate ESG practices into governance, which many believe are long overdue at Exxon Mobil Corporation (NYSE: XOM). The news publication also claimed that the hedge fund won the board seats with backing from some of the most powerful investors, including BlackRock Inc, an asset manager based in New York that is considered one of the top institutional investors in the world.
There has also been increased pressure on hedge funds from clients who want exposure to ESG and impact investing. A survey by Preqin, a capital market company based in London, reveals that more than 60% of institutional investors believe that ESG will become even more integral to the finance industry in the coming years and months. However, an overwhelming majority of the survey respondents still do not believe that it is necessary for hedge fund managers to deliver regular ESG reporting.
ESG and impact investing could provide a possible path forward for big finance that has otherwise struggled in the face of shifting market dynamics. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
With this context in mind, here is our list of the 10 top hedge funds focusing on ESG and impact investing. These were ranked keeping in mind the investment portfolio, manager profile, and the top holdings of each fund in line with relevance to the ESG movement and impact investing.
10 Top Hedge Funds Focusing on ESG and Impact Investing
10. Inclusive Capital
Inclusive Capital is a hedge fund based in San Francisco. It is placed tenth on our list of 10 top hedge funds focusing on ESG and impact investing. The total portfolio value of the fund is close to $1.35 billion. The fund is controlled by Jeff Ubben, a renowned name on Wall Street who began the fund last year to focus on investments related to ESG values and impact investing. The fund is working with Exxon Mobil Corporation (NYSE: XOM), one of the largest energy firms in the world, to diversify the energy business of the company away from fossil fuels to cleaner sources.
Jeffrey Ubben
Inclusive Capital is bullish on Nikola Corporation (NASDAQ: NKLA), the firm that makes and sells new energy vehicles. Out of the hedge funds being tracked by Insider Monkey, San Francisco-based firm Inclusive Capital is a leading shareholder in Nikola Corporation (NASDAQ: NKLA) with 10.2 million shares worth more than $142 million.
Just like Alphabet Inc. (NASDAQ: GOOG), Citigroup Inc. (NYSE: C), Exxon Mobil Corporation (NYSE: XOM), and Cisco Systems, Inc. (NASDAQ: CSCO), Nikola Corporation (NASDAQ: NKLA) is one of the top stocks on the portfolio of hedge funds focusing on ESG and impact investing.
In its Q4 2020 investor letter, Bireme Capital, an asset management firm, highlighted a few stocks and Nikola Corporation (NASDAQ: NKLA) was one of them. Here is what the fund said:
“Nikola Corporation (NKLA) is a poor-man’s facsimile of Tesla. Even the name is a blatant ripo: both are named aer the inventor Nikola Tesla. NKLA is a pre-revenue company founded in 2014 that has yet to bring a product to market, despite the promotion of a dizzying array of concepts:
Nikola Badger: pickup with both fuel-cell and electric variants
Nikola One: fuel-cell commercial semi-truck
Nikola Two: fuel-cell commercial semi-truck
Nikola Tre: electric commercial semi-truck
Nikola NZT: electric four-wheel drive utility vehicle
Nikola Reckless: electric military grade o-highway vehicle
Nikola WAV: electric watersports vehicle
As far as we can tell from their latest investor communications, only the Nikola Tre Commercial semitruck is still in development.” (Click here to see the full text)
9. BlackRock Fund Advisors
BlackRock Fund Advisors is an investment firm founded in 1984. It is placed ninth on our list of 10 top hedge funds focusing on ESG and impact investing. It is owned by Blackrock, the New York-based investment management company. The fund has a portfolio value of over $542 billion, making it one of the largest private funds in the world. Most of the investments of the fund are in the technology, services, and utility sectors of the market. The fund has integrated economic, social, and corporate governance factors, in line with the practice of the parent company, into the decision-making process behind new endeavors.
BlackRock Fund Advisors holds a large stake in Apple Inc. (NASDAQ: AAPL), the technology based in California. At the end of the first quarter of 2021, 127 hedge funds in the database of Insider Monkey held stakes worth $130 billion in Apple Inc. (NASDAQ: AAPL), down from 146 in the preceding quarter worth $142 billion.
Just like Alphabet Inc. (NASDAQ: GOOG), Citigroup Inc. (NYSE: C), Exxon Mobil Corporation (NYSE: XOM), and Cisco Systems, Inc. (NASDAQ: CSCO), Apple Inc. (NASDAQ: AAPL) is one of the top stocks on the portfolio of hedge funds focusing on ESG and impact investing.
In its Q1 2021 investor letter, Distillate Capital, an asset management firm, highlighted a few stocks and Apple Inc. (NASDAQ: AAPL) was one of them. Here is what the fund said:
“Apple is an even more notable situation and one that highlights our free cash valuation methodology and bears further discussion given its Q3 ‘20 sale from our strategy. For an extended period, Apple was extraordinarily inexpensive on a free cash flow basis and was the largest position in our strategy, exceeding 5% of the portfolio.”
8. Parnassus Investments
Parnassus Investments is ranked sixth on our list of 10 top hedge funds focusing on ESG and impact investing. It.is a wealth management firm founded in 1984. It has a portfolio value of over $41 billion. The technology, services, and industrial goods sectors comprise the majority of the investments of the fund. On July 6, Affiliated Managers Group, a Florida-based investment management company, acquired a large stake in the fund. One of the leading investment vehicles of Parnassus is the Parnassus Endeavor Fund, an ESG-focused $3.6 billion fund that returned more than 55% to investors over the past year, according to S&P Global.
One of the top holdings of Parnassus Investments is Microsoft Corporation (NASDAQ: MSFT), the technology company based in Washington. Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Microsoft Corporation (NASDAQ: MSFT) with 23.9 million shares worth more than $5.6 billion.
Just like Alphabet Inc. (NASDAQ: GOOG), Citigroup Inc. (NYSE: C), Exxon Mobil Corporation (NYSE: XOM), and Cisco Systems, Inc. (NASDAQ: CSCO), Microsoft Corporation (NASDAQ: MSFT) is one of the top stocks on the portfolio of hedge funds focusing on ESG and impact investing.
In its Q1 2021 investor letter, Polen Capital, an investment management firm, highlighted a few stocks and Microsoft Corporation (NASDAQ: MSFT) was one of them. Here is what the fund said:
“We have written extensively about Microsoft in recent commentaries. It was our leading contributor last year and one of our largest weightings within the Portfolio. It continues to experience business momentum through several dominant, essential, and competitively advantaged businesses, like Office 365 and Azure. The markets it competes for are enormous, which gives the company the ability to compound at scale. In the past quarter alone, the company generated over $40 billion in revenue, representing a 17% growth rate. The inherent operating leverage in Microsoft’s business model continues and led to 34% earnings growth this past quarter. Despite the broad rotation we saw in the first quarter and Microsoft’s robust performance in 2020, we think its business fundamentals continue to exhibit strength, and the stock continues to reflect the fundamentals.”
7. Triodos Investment Management
Triodos Investment Management is a Netherlands-based fund that focuses on impact investing. It has a portfolio value of over $631 million with the technology, consumer goods, and healthcare sectors making up a large portion of the total. The fund invests in sustainable initiatives across the globe. Renewable energy and microfinance are some of the favorite investment areas of the fund. The fund is also a member of the Global Impact Investing Network, a non-profit that supports impact investing. It is placed seventh on our list of 10 top hedge funds focusing on ESG and impact investing.
Triodos Investment Management has invested heavily in Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM), the Taiwan-based semiconductor firm. At the end of the first quarter of 2021, 76 hedge funds in the database of Insider Monkey held stakes worth $10.8 billion in Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM), up from 72 in the preceding quarter worth $11.8 billion.
Just like Alphabet Inc. (NASDAQ: GOOG), Citigroup Inc. (NYSE: C), Exxon Mobil Corporation (NYSE: XOM), and Cisco Systems, Inc. (NASDAQ: CSCO), Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) is one of the top stocks on the portfolio of hedge funds focusing on ESG and impact investing.
In its Q1 2021 investor letter, Bonsai Partners, an asset management firm, highlighted a few stocks and Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) was one of them. Here is what the fund said:
“Taiwan Semiconductor is the world’s largest outsourced foundry of logic semiconductor chips. TSMC’s shares appreciated 8.9% during the quarter.
Similar to last quarter, the supply-demand imbalance in semiconductor chips continues to benefit TSMC. To fuel new technological advances and meet the current supply imbalance, we see significantly increased capital spending across the industry over the coming years.” (Click here to see the full text)
6. Engine No. 1 LLC
Engine No. 1 LLC is an investment firm based in San Francisco. It is ranked sixth on our list of 10 top hedge funds focusing on ESG and impact investing. It has a portfolio value of over $273 million. The firm is managed by Chris James and invests in technology and basic materials, among other market segments. The firm, which sits on the board of Exxon Mobil Corporation (NYSE: XOM), has been pushing the energy company to accelerate a shift to cleaner energy sources, moving away from fossil fuels. The firm has a $51 million stake in Exxon Mobil Corporation (NYSE: XOM).
One of the premier holdings of Engine No. 1 LLC is NXP Semiconductors N.V. (NASDAQ: NXPI), the Dutch semiconductor manufacturer. Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in NXP Semiconductors N.V. (NASDAQ: NXPI) with 1 million shares worth more than $211 million.
Just like Alphabet Inc. (NASDAQ: GOOG), Citigroup Inc. (NYSE: C), Exxon Mobil Corporation (NYSE: XOM), and Cisco Systems, Inc. (NASDAQ: CSCO), NXP Semiconductors N.V. (NASDAQ: NXPI) is one of the top stocks on the portfolio of hedge funds focusing on ESG and impact investing.
In its Q1 2021 investor letter, Alger, an asset management firm, highlighted a few stocks and NXP Semiconductors N.V. (NASDAQ: NXPI) was one of them. Here is what the fund said:
“NXP Semi conductors was among the top contributors to performance during the quarter. NXP Semiconductors provides high performance semiconductor solutions for a wide variety of applications, including automotive, mobile communications, consumer technology, computing, wireless infrastructure, lighting and industry. We believe NXP has an attractive cyclical tailwind with the economic reopening due to its exposure to the automotive industry and the growth of the Internet of Things. NXP’s shares performed strongly after the company said it has generated revenue growth and provided healthy forward guidance driven by an improving global macro that is evident in decreasing channel inventory levels and solid pricing.”
5. CQS Cayman LP
CQS Cayman LP is placed fifth on our list of the 10 top hedge funds focusing on ESG and impact investing. It is a hedge fund based in Cayman Islands and has a portfolio value of more than $1.4 billion. It is managed by Michael Hintze and concentrates on investments related to the technology and services sectors. Hintze has recently renewed focus on impact investing and has been a vocal supporter of the Global Warming Policy Foundation, a United Kingdom-based lobby group that aims to urge world governments to adopt climate-friendly policies.
Michael Hintze of CQS Cayman LP
CQS Cayman LP has invested a lot of money in Discovery, Inc. (NASDAQ: DISCA), the media firm famous for nonfiction content. Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Renaissance Technologies is a leading shareholder in Discovery, Inc. (NASDAQ: DISCA) with 3.8 million shares worth more than $167 million.
In its Q1 2021 investor letter, Mayar Capital, an asset management firm, highlighted a few stocks and Discovery, Inc. (NASDAQ: DISCA) was one of them. Here is what the fund said:
“We also sold most of our holdings in Discovery as the stock price continued to increase to new highs. However, in late March the stock declined considerably when brokers liquidated holdings by Archegos Capital (see above in General Commentary) to satisfy margin calls. That brought the stock price down to levels that we found attractive, and we bought back a significant amount of the shares that we had sold earlier that month.”
4. Avenue Capital
Avenue Capital is a New York-based investment firm. It is ranked fourth on our list of 10 top hedge funds focusing on ESG and impact investing. The fund has a portfolio value of more than $144 million and is managed by Marc Lasry. The fund has previously announced plans to raise close to $600 million for a fund solely focused on impact investing. The fund, named Avenue Sustainable Solutions Fund, aims to provide flexible capital and other services to impact-focused firms primarily in North America.
One of the top investments of Avenue Capital is Vistra Corp. (NYSE: VST), the electric power company headquartered in Texas. The company is a good investment option for income investors. On April 29, it declared a quarterly dividend of $0.15 per share, in line with previous. The forward yield was 3.52%.
At the end of the first quarter of 2021, 90 hedge funds in the database of Insider Monkey held stakes worth $6.9 billion in Vistra Corp. (NYSE: VST), down from 95 the preceding quarter worth $7.1 billion.
3. TCI Fund Management
TCI Fund Management is a hedge fund run from London. It is managed by Chris Hohn. It is placed third on our list of 10 top hedge funds focusing on ESG and impact investing. The fund has more than $34 billion in assets under management. Most of the investments of the fund are concentrated in the technology, services, and finance sectors. Hohn is a vocal advocate of environmental protection and lobbies for reduction of greenhouse gases around the world, pushing companies he has invested in to reduce their carbon footprint.
Chris Hohn
One of the biggest holdings of TCI Fund Management is Alphabet Inc. (NASDAQ: GOOG), the technology company that operates from California. Out of the hedge funds being tracked by Insider Monkey, London-based investment firm TCI Fund Management is a leading shareholder in Alphabet Inc. (NASDAQ: GOOG) with 2.9 million shares worth more than $6.1 billion.
In its Q1 2021 investor letter, Artisan Partners, an asset management firm, highlighted a few stocks and Alphabet Inc. (NASDAQ: GOOG) was one of them. Here is what the fund said:
“Large-cap tech companies have been resilient through the pandemic—Alphabet among them. A top contributor, Alphabet’s Play Store and Google Cloud are in demand as businesses accelerate online activity which, along with strong YouTube user growth, is helping stabilize temporarily weaker search ad revenue trends. Through the lens of our disciplined bottom-up research process, we view Alphabet as one of the best businesses in the world, capable of expanding revenues at a rapid rate for years to come, with a bullet proof balance sheet and an average asking price. It’s a name we’ve owned since 2012 and for which we continue to have high hopes regarding future prospects.”
2. ValueAct Capital
ValueAct Capital is a hedge fund based in California. It is ranked second on our list of 10 top hedge funds focusing on ESG and impact investing. The fund has a portfolio value of over $8.5 billion. The finance and technology sectors comprise the majority of investments of the hedge fund. The fund was managed by Jeffrey Ubben till last year when he left to start his own venture. ValueAct has a strong ESG-focused approach to investments, a legacy left behind by Ubben who managed the fund for close to twenty years.
A top holding of ValueAct Capital is Citigroup Inc. (NYSE: C), the investment banking firm based in New York. At the end of the first quarter of 2021, 90 hedge funds in the database of Insider Monkey held stakes worth $6.9 billion in Citigroup Inc. (NYSE: C), down from 95 the preceding quarter worth $7.1 billion.
In its Q1 2021 investor letter, Artisan Partners Limited Partnership, an asset management firm, highlighted a few stocks and Citigroup Inc. (NYSE: C) was one of them. Here is what the fund said:
“We fully exited position in Citigroup. Global financial services company Citigroup made a $900 million clerical error and received a public reprimand from federal regulators. This, after a decade focused on process control, information technology and risk systems, makes the error substantially more costly than just the $900 million mistake. Regulators believe the company’s risk management improvements have fallen short of expectations. To rectify the situation, a process and technology spending surge could negatively affect 2021-2022 profits by 10% to 20%. Trust and confidence are important in large financial institutions, and this incident combined with the CEO’s sudden retirement shook ours.”
1. Generation Investment Management
Generation Investment Management is placed first on our list of 10 top hedge funds focusing on ESG and impact investing. It is a hedge fund headquartered in London with a portfolio value of close to $24 billion. Most of the investments of the fund are concentrated in the technology, healthcare, and finance sectors. The fund is managed by David Blood And Al Gore. Al Gore, a former US presidential candidate, is one of the leading climate rights activists in the world and his hedge fund has a keen focus on firms working in this area.
David Blood of Generation Investment Management
One of the top holdings of Generation Investment Management is Cisco Systems, Inc. (NASDAQ: CSCO), the technology based in California. Out of the hedge funds being tracked by Insider Monkey, London-based investment firm Generation Investment Management is a leading shareholder in Cisco Systems, Inc. (NASDAQ: CSCO) with 23 million shares worth more than $1.2 billion.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Cisco Systems, Inc. (NASDAQ: CSCO) was one of them. Here is what the fund said:
“Also in IT, we added Cisco Systems, which provides IT and networking services in the form of network security, software development and cloud computing. Cisco continues to derive over 50% of its sales from on-premise deployments of its products of enterprise and small and midsize customers, while recurring revenues from software are becoming a larger part of the mix. Return-to-office enterprise spending should offer upside to its core campus business. Cisco was an early technology leader in sustainability over two decades ago, through its Internet-connecting capabilities which supported live concerts in partnership with the United Nations Development Program to raise awareness and funds to fight poverty. Cisco has very strong environmental standards (including driving lower energy consumption in IT departments through new product innovations and a longstanding goal to reduce emissions and reliance on non-renewable energy sources). Its data privacy and supply chain management policies are best in class.”
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Disclose. None. 10 Top Hedge Funds Focusing on ESG and Impact Investing is originally published on Insider Monkey.
