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U.S. ESG funds struggle to keep pace with global peers

Environmental, social and governance-focused funds investing outside the U.S. have fared significantly better than their U.S. counterparts. Three- and five-year alpha numbers for the ex-U.S. cohort were 1.42% and 1.51%, respectively, while U.S. ESG funds struggled to outperform their targets.

Trends by market capitalization show similar patterns in U.S. ESG funds with which non-ESG funds are struggling as small- and smid-cap funds are having a better go of it than their large-cap peers, albeit among a smaller sample size. Average three- and five-year alphas for U.S. small-cap funds were 2.3% and 2.9%, respectively, while large-cap fund alphas were about -0.3% over both time periods.

Ex-U.S. ESG funds have experienced comparable results, but outside of mega-cap ESG funds, average alphas across all market-cap classifications has been positive.