Mega-cap tech stocks dominate many ESG funds. Here's why

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The top holdings of many ESG funds may be surprisingly familiar.

While these strategies consider a company's environmental, social and governance factors, these funds still aim to invest in top performers across industry groups, DWS Group's Arne Noack explained.

"The idea isn't to be super concentrated and only select a handful of stocks that do the best from an ESG or from a climate principle, but still have a portfolio that largely resembles the economic makeup of the US economy," the firm's head of systematic investment solutions for the Americas told CNBC'sESG funds also tend to be more heavily invested in technology stocks because the sector is one of the"cleaner" industries, according to former VettaFi financial...

"If you solely look at climate as your window, you'll probably not end up not owning a lot of energy companies, not owning a lot of miners not owning a lot of steel companies," Nadig said.according to Xtracker's website. That's more than double the fund's second largest sector allocation — 13.5% in health care."There's sometimes a misperception that ESG funds cannot invest in energy companies. That's absolutely wrong.

" pulled back. They probably aren't coming back. The demand from individuals, however, never really waned," Nadig said."What went away was the hot money of people thinking this was going to be a momentum kind of play. It's not a momentum play. This is a long-term way of approaching your allocation."

 

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