alt Hacker NewsESG is just giving up returns for a good feeling, isn't it?
Stock picking is just folly for individual investors, isn't it?
Anyone claiming they can consistently beat any large index is just delusional, aren't they?
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As Matt Levine often points out, there are two possible cases for ESG
1/ This will bring worse returns, but I'm willing to accept the loss in order to forward values I support
2/ This will bring better returns, since the market underrates risks from bad ESG companies (e.g. the long-term return on capital for coal companies will be worse than the market expects)
People marketing ESG funds (or anti-ESG, same rule applies) usually emphasise the second.
> Anyone claiming they can consistently beat any large index is just delusional, aren't they?
This is obviously not true. RenTech would like a word.
On ESG/SRI: fair, excluding sectors comes at a cost, and we make that trade-off knowingly.
On stock picking: the system is rules-based and mechanical, not discretionary. The "folly" argument applies most strongly to human judgment calls, which this attempts to remove. I literally wanted to reduce bias and get a better vantage point.
On beating the index: 14 years of backtested data with walk-forward validation suggest it's possible for this specific strategy. Whether it holds going forward, nobody knows. We publish the ten best and worst precisely because we're not claiming certainty.