ESG, ETFs, and commodities

ESG investing is hot. Barely a day goes by without some new survey suggesting that we should be investing more ethically. As an example, a recent survey by Bank of America showed that 78% of Millennials review their investment portfolios from an ESG perspective, compared to only 63% from Generation X. Modern investment firms such as robo-advisors like Wealthfront or Betterment, which target Millennials, have therefore integrated ESG in their core product offering. But does ESG makes sense from an investment perspective? The evidence from various academic studies is at best mixed with very little evidence for outperformance.

Quantitative researcher Nicholas Rabener runs a firm called FactorResearch and has crunched the data on ESG returns from a gaggle of relatively well-established exchange-traded funds in the US which boast ethical credentials. The chart below shows the resulting under and over performance for ESG ETFs versus the plain vanilla (evil) benchmarks.

What do the results tell us? The numbers point to an almost random in distribution i.e no noticeable outperformance or under performance. Given that most investors are worried about not saving enough for their retirement in the US and the UK (if not on the European continent), maybe it might be better to focus less on ESG factors and more on boosting long term capital growth?

You can see the original research by Nicholas here –

What have commodity investors been buying 2019 ? Rhodium??

Great article on this week from the excellent George Geddes. He’s been poking around in the ETF data to see which commodities have been performing in 2019. As you’d expect gold did well as did the other precious metals. Here’s George’s take on precious metals…

“ In August, the price of gold was consistently climbing, hovering around $1,500/oz and WisdomTree forecasts the price to continue climbing to $1,550/oz by Q2 2020. WisdomTree’s Nitesh Shah, director and commodity strategist, spoke with ETF Stream and said gold’s price rally has been “the biggest surprise” of 2019. Gold has been the standout this year with the data up to November showing inflows of nearly $1.4trn into gold ETPs which are probably the strongest inflows we’ve seen in seven or eight years, if not, in the history of ETPs,” Shah continued. Silver and platinum have been following closely to gold’s performance and flows but on a smaller scale. Shah said: “We saw inflows into silver and platinum ETPs which were falling on the coattails of the demand for gold but on a much smaller scale around the $250m range.”

But the prize for best performing commodity goes to one I’ve never even heard of.


Heard of it? Nope, me neither.

“By a significant margin, the Xtrackers Rhodium ETP (XRH0) has not just been the top-performing commodity ETP this year, it’s been the best performing product across all asset classes. Over the same period, XRH0 had a YTD performance of 130.1%, but what is it? It is an extremely rare noble metal and part of the platinum group. It is predominantly used within automobiles production, alloyed with platinum or palladium to create corrosive-resistive coatings. It’s surprisingly unheard of, with XRH0 only having $75m assets under management despite launching back in 2011. When questioned for more information on the product and reasoning for its performance, DWS was unable to comment due to it being so niche. A spokesperson for the firm said, “it’s such a small product that doesn’t trade much, it sits in the product line up but none of our sales specialists are experts on it, so no one has expertise in the underlying market and there’s not been a rush of flows into it.” According to Shah, Rhodium is a rarer metal than the other platinum group metals which means there is slightly less liquidity in the underlying. “With there being such a sharp rally in the palladium prices, there has been desire by automobile manufacturers to diversify away from palladium and increase platinum loadings. Therefore, combining more with rhodium, there was a demand boost from the industrial side, said Shah. “As rhodium is rarer than palladium, the rally in price is even more extreme and the availability for the industrial side is even tighter.” WisdomTree does offer a palladium ETP (PHPD) which has been the firm’s top-performing product this year returning 45% as at the end of November. There has been an equal amount of demand for the metal but due to its underlying market being more liquid, its performance hasn’t been anywhere near the same level as rhodium.”

If you want to find out more about the investment case for rhodium check out these articles online:

Marketwatch –

5 Interesting facts about rhodium –

Chris Carter at Moneyweek on the metal –

Kitco’s excellent charts on Rhodium –

US publication The Balance on the nine biggest Rhodium producers –