The MSCI USA ESG Leaders index generated higher three- and five-year returns than the MSCI USA index through Sept. 30. The ESG index had a five-year return of 16.3%, about 40 basis points higher than the MSCI USA index. The ESG index also had an 18.3% volatility for the five-year period, slightly lower than the parent index’s 18.4%.
However, the ESG index had a 10-year return of 13.2% return, roughly equal to the MSCI USA index’s 13.3%.
Over three and five years, the MSCI USA ESG Leaders index produced higher risk-adjusted returns, as measured by the Sharpe ratio. The Sharpe ratios were 0.53 and 0.8 for the three- and five-year periods, respectively, vs. 0.49 and 0.78 for the parent index.
Over 10 years, both indexes had a Sharpe ratio of 0.78.
The ESG index has a 34.4% weight for the information-technology sector, 340 basis points higher than the MSCI USA index. It is noticeably underweight the energy and utility sectors by roughly 170 and 130 basis points, respectively.
The ESG has a 41.3% weighting in its largest 10 holdings. These same stocks have a 21.8% weighting in the parent index.
