ESG fund manager beats 99% of peers with giant bet on Nvidia

BLOOMBERG

The ESG fund with the biggest exposure to Nvidia Corp has just beaten 99% of its peers, as bets on artificial intelligence (AI) transform the fortunes of portfolios promoting environmental, social and governance principles.
The $830 million Nvidia stake held by Swedbank Robur Technology C makes it the most exposed ESG-registered fund to the world’s most valuable chip company, according to the latest data compiled by Bloomberg. That’s in a universe of about 1,300 ESG funds that hold Nvidia, the data show. The $10.5 billion Swedbank Robur fund gained 20% in May alone, topping 99% of peers. This year, it’s up 40%.
Kristofer Barrett, who manages the fund from Stockholm, says he’s been trying not to get dragged into the frenzy, because there’s plenty of evidence that markets can be “irrational.” The tech fund he oversees, which is registered as Article 8 in the EU, meaning it “promotes” ESG, has held Nvidia since 2016.
“Net-net, because of efficiency, productivity, things like that, AI is going to be good for society,” Barrett said. After adding almost a third to its value following a surprisingly strong revenue forecast, Nvidia fell 5.7% and then rebounded. Investors were reacting to other corners of the AI industry, where weaker-than-estimated numbers injected a sense of caution after days of breathless gains.
There will be “great opportunities both on the buying and selling side, while the fundamentals change much more slowly,” Barrett said in an interview. “As with everything, where valuations change, there are risks.” The ESG fund industry has long had an outsize exposure to tech, which investors have treated as an easy path to low-CO2 portfolios.
During the pandemic, that bet paid off as low interest rates and global work-from-home policies buoyed the sector. But last year, everything changed. Higher rates and an energy supply crisis caused by Russia’s unprovoked war against Ukraine made tech a losing bet, which fuelled a polarising debate around the future of ESG.
Now, the pendulum appears to be swinging yet again. The world’s best-performing ESG funds this year have all booked returns exceeding 30% and are packed full of tech, covering everything from long-standing giants such as Microsoft Corp, to newer names in renewables, artificial intelligence and semiconductors, according to data compiled by Bloomberg.
In fact, tech is by far the biggest sector in so-called Article 9 funds, the EU’s top ESG designation, according to an analysis by Bloomberg Intelligence that looked at the 60 most-held stocks.
ESG’s exposure to tech is now helping it outperform traditional funds, said Joachim Klement, a strategist at Liberum Capital. But the ESGness of such investments is worth debating, he said. That’s because the rise of AI means computing-intensive applications will rise in popularity, which implies a rise in energy consumption.
“As long as server farms and computers that perform AI applications aren’t run with renewable energy, that is bad news for the environment since the AI boom implies a larger demand for electricity generated with fossil fuels,” he said.