Exchange-traded funds (ETFs) that claim to reject environmental, social, and governance (ESG) principles are multiplying, but experts say the difference between these so-called “anti-ESG” products and traditional funds may lie more in marketing than in actual investment strategy.

The concept is not new. Hal Lambert, founder of Point Bridge, launched one of the first overtly conservative funds in 2017, i.e., the Point Bridge America First ETF (MAGA), tracking companies whose political action committees supported Republican candidates. Lambert argues that many investors already ignore ESG considerations, even without explicitly branding their portfolios as “anti-ESG.”

A lack of clear definitions for ESG and diversity, equity, and inclusion (DEI) practices makes the market harder to assess. Terms like “anti-woke” vary widely in meaning, depending on who uses them.

A Growing Anti-ESG Landscape

The “anti-ESG” ETF space has seen new entrants, such as the Azoria 500 Meritocracy ETF, launched last month by James Fishback, an adviser in the Trump administration. The fund focuses on companies that do not consider gender or race in hiring, tapping into a backlash against DEI policies.

Other notable examples include:

• The God Bless America ETF (YALL): Avoids companies engaged in DEI or funding “radical social movements.”
• The Constrained Capital ESG Orphans ETF (ORFN): invests in firms often excluded from ESG portfolios.
• The American Conservative Values ETF (ACVF): Tracks companies with perceived conservative values.

Some funds face challenges in delivering on their anti-ESG promises. As more companies scale back DEI policies, excluding them becomes easier. But other strategies risk limiting sector exposure and underperforming broader benchmarks. For instance, MAGA’s expense ratio of 0.72% is high compared to typical index-tracking funds.

Still, some anti-ESG ETFs have attracted significant assets. Strive’s US Energy ETF (DRLL), heavily weighted toward oil and gas, and Inspire 100 ETF (BIBL), which invests in “biblically aligned” companies, each hold over $300 million.

Read More: Understanding the Anti-ESG Fund: Why Should We Care?

The Retreat from ESG

Investor appetite for ESG resolutions has declined sharply. In 2023, only 1% of such proposals at the largest asset managers passed down from nearly 25% in 2021. Critics often dismiss ESG as “woke investing,” but supporters argue it’s about long-term risk management.

Peter Krull of Earth Equity Advisors says ESG analysis considers factors beyond traditional metrics like price-to-earnings ratios. For example, a Florida-based company faces climate risks that a midwestern firm does not. Some investors continue to back sustainable companies quietly, a practice dubbed “greenhushing.”

However, research suggests greenhushing may not signal a real shift in corporate behavior. Some firms, such as Nestlé and Nike, have dropped unsubstantiated climate pledges without changing business practices.

Labels vs. Reality

The lack of standardization in ESG ratings, which differ across platforms like Sustainalytics and MSCI, adds to the confusion. Maggie Kulyk of Chicory Wealth says political branding often overshadows actual portfolio composition. Some “anti-woke” funds still hold companies with strong diversity metrics or in industries targeted by their own narrative.

Also Read: Why Anti-ESG Funds Aren’t Winning Over Investors

A Politically Charged Market

Experts expect ideological investing to grow as political polarization deepens. Krull notes that his firm’s assets grew faster during Donald Trump’s presidency than under Barack Obama, as investors sought to express political views through their portfolios.

Whether pro- or anti-ESG, the debate underscores how investment products increasingly serve as tools in America’s cultural and political divides, even if their holdings often remain surprisingly similar.

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Source: The Daily Upside