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Kevin O’Leary on ESG ETFs: “Performance Has Been Abysmal”

This article was originally published on ETFTrends.com.

Although the idea of socially responsible ETFs that focus on environmental, social and governance (ESG) is not relatively new, it’s still struggling to break into the investment mainstream. "Shark Tank" TV personality and O'Shares ETF Investments chairman Kevin O'Leary cites a reason why--a lack of returns.

"The truth is the performance has been abysmal," O'Leary said on the "ETF Edge" segment on CNBC.

O'Leary's comments come as the top three ESG ETFS, according to market cap, ended 2018 in the red:

  1. iShares MSCI KLD 400 Social ETF (DSI) : -3.88 percent
  2. iShares MSCI USA ESG Select ETF (NYSEArca: SUSA) : -5.65 percent
  3. Invesco Water Resources ETF (PHO) : -6.39 percent

Conversely, they have actually provided positive returns year-to-date in 2019:

  1. iShares MSCI KLD 400 Social ETF (DSI)  6.3 percent
  2. iShares MSCI USA ESG Select ETF (NYSEArca: SUSA): 6.1 percent
  3. Invesco Water Resources ETF (PHO) : 9.5 percent

However, saving whales and other social issues doesn't exactly fit O'Leary's definition of social responsibility--if such a definition even exists.

"I thought being socially responsible was to make money for your investors and that has never changed in my view," O'Leary added.

"What does it mean to be socially responsible?" O'Leary posited. "Is it socially responsible in the jurisdiction where you operate, in your community, is it in India?"

As it currently stands, the aggregate market capitalization of socially-responsible ETFs stands at $8.52 billion based on data from XTF.com. The question remains, however, can these funds continue to attract capital or will it go the way of neon-colored outfits in the 1980s?

"I think it's thematic, it's a fad, it's sitting around the fireplace singing 'kumbaya,'" said O'Leary. "It makes no sense to me. If you're an institutional investor, you have to make money for your shareholders, they can take their profits and redistribute their wealth any way they want."

Summarily, O'Leary doesn't try to pigeonhole ESG ETFs into a niche market, but that all funds should be defined on a binary basis: whether it makes money or not.

"At the end of the day, long-term, if you can't outperform the market, it doesn't matter what you call yourself," O'Leary said.

"People take capital, put it at risk and they want a return," said O'Leary. "It's not about 'kumbaya.'"

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