Investment products that focus on sustainable funds are hot sellers lately. According to Morningstar, flows into open-end and exchange traded funds available to U.S. investors reached $13.5 Billion through September, compared to just $5.5 Billion for all of 2018. But compared to the overall fund industry with Trillions under management, it's a mere pittance.

Impact investing, ESG (companies get ESG - Environment, Social and Governance - rankings), SRI, sustainable, etc. are popular buzzwords in the fund world. And why not? We're all rooting for Mother Earth. Companies that could solve the planet's pollution, health, and energy needs should do well, at least one would expect. Plus, wouldn't we all feel good knowing our investment dollars are in companies that make the world a better place?

I took a deep dive into educating myself about this subject. I avoided mutual fund company research. In fact, I avoided any research of any company that's in the business of selling the above class of products.

My first thought after looking into ETF's in this space is that the ones I looked at had similar TOP 10 positions, including; Microsoft, Apple, Alphabet (parent of Google), Amazon, Visa, & JP Morgan. They were tech heavy compared to the S&P 500. My takeaway is that these are really tech heavy investment products which introduce an extra added level of potential for both profit and peril. Since the technology sector has done relatively better than other sectors over the last few years, these funds have performed well; some a little better than others but no major flops YTD. But if tech goes through a route similar to the year 2000, that will have a disproportionate effect on the downside. Silicon Valley companies have embraced social and economic causes, so the overweight of their stocks in these products can't be avoided. I'm not against that; just to say that I don't think mom and pop investors realize it because they're just going by how the name "Sustainable" makes them feel good about their investments.

My second thought comes from a research paper that is commonly cited in a bunch of articles I came across. In a research paper written by Wayne Winegarden of Pacific Research Institute, he looked at 30 ETF's in this space, including some of the ones I looked at. While some of the ETF's outperformed the S&P over periods of time, it was random and short lived for the most part. Out of 18 ESG funds that had a full 10-year performance history, only 2 beat the benchmark. There are reasons for that, including expenses. But the point is that ESG and SRI should not be marketed as a "better" way to invest.

My third thought is that I stumbled upon ETFs that invest in areas that I never knew existed. One of them, WOMN, is called Impact Shares YWCA Women's Empowerment ETF. Another one, PRID, is called Insight Shares LGBT Employment Equality ETF. Then there are sector bets in things like water, solar power, natural gas, and battery manufacturing. But the WOMN and PRID have something in common. among their TOP TEN holdings are Microsoft, Apple, Amazon, Alphabet, Facebook, Johnson & Johnson, and JP Morgan. A lot of these ETF's look like S&P 500 stocks minus alcohol, tobacco, gambling, energy, and defense company stocks. The packaging is different, but the inside looks similar.

My fourth thought is that over time, investors are not earning extra alpha from this space. If they're not driven by data, they're driven by emotion - which is usually not an ideal way to invest. Now, I understand that there are more important things in life than trying to squeeze every cent out of one's investments. I full well respect people's principles more than their money - every day of the week and twice on Sundays. What I don't like to see is a retirement or college saver invest in something that is beyond the limit of their risk tolerance. Simply put, it's a bad idea to judge both people and funds based on just a label.

My fifth and final thought is that public traded companies are moving rapidly to become better corporate citizens, which makes ESG/SRI fund products even more redundant than they already are. The Business Roundtable, which includes America's top CEO's like Jeff Bezos, Bill Gates, Jamie Dimon, and Warren Buffett, said that shareholder value is no longer everything - rebuking the notion that the role of a corporation is to maximize profits at all costs. Companies pay too steep of a price in the market place for litigation, environmental disasters, sexual harassment, and other self inflicted wounds. We're in a time when executives are under the social media spotlight, making it harder to do business the "old way". It turns out that being a good corporate citizen is good for business. It attracts better talent, cuts costs, creates good will in the eye of customers, and keeps executives out of trouble, and hopefully out of Congressional grillings. It's also how companies will be able to attract younger shareholders, who will become the ultimate arbiter of shareholder value. It's all a good, whatever the reasons. It took too long to arrive to this point and it's never going back.

For more reading, check this out to see how BlackRock (owner of iShares) and Vanguard voted on shareholder resolutions for climate and social change that affects corporate performance: Activists thought BlackRock, Vanguard found religion on climate change. Not anymore.

Now, check out this video I made all about it: