Searching for Market-Outperforming ESG-Equity Mutual Funds

Abstract

Interest in ESG-fund investing has been rising robustly in the 21st century. Collective performance, however, has mostly trailed that of broad market indexes, with records of outperformance being limited to hindsight. Out-of-sample track records, or those “in foresight,” are scant. Given these observations, this article searches for US ESG-equity mutual funds that have track records of outperformance in foresight. The period is from 2005 through 2021. The analysis is based on 1-, 3-, 5-, and 10-year out-of-sample holding periods, with mutual fund portfolios constructed from the Black-Litterman model. Eight outperforming funds emerge out of a sample of 104, providing a starting point for wealth managers and investors.