Transamerica is overhauling a large-cap fund, giving the product an ESG mandate.
The company’s $159m Large Core Fund will become the Large Core ESG Fund on March 1, accompanied by a significant change in the range of securities it can select from, according to an SEC filing December 28. As of that date, the fund will switch from investing in companies in the S&P 500 Index to large companies with an MSCI ESG rating of A or higher, the updated prospectus stated.
Transamerica is retaining the subadvisor for the fund, PineBridge Investments, with portfolio manager Sheedsa Ali staying on. Ali has been the portfolio manager since September 2018.
Currently, the fund does not have a sustainability mandate and thus has an average sustainability rating from Morningstar, which gave it a carbon risk score of 7.8. Although that indicates its portfolio companies have a small amount of energy-transition risk, nearly 9.6% of the fund’s assets are invested in fossil fuels, higher than the category average of less than 7.8%, according to Morningstar.
Further, about 9% of the fund’s investments have controversies linked to them, which is also higher than average.
Transamerica did not respond to a request for comment.
Wider trend
Although it has become common for non-ESG funds to incorporate sustainability considerations in their investment processes, and in some cases add “ESG” to their names, that trend could be slowing.
“We haven’t yet finalized the data for Q4, but there were approximately a dozen US funds that repurposed to ESG mandates in the first three quarters of 2022,” said Alyssa Stankiewicz, associate director of sustainability research at Morningstar, in an email. “That is slightly down from the 18 funds that repurposed to ESG mandates in the first three quarters of 2021 but roughly on par with the pace we saw in 2020.”
Outliers
It has been far less common for ESG-named funds to remove their ESG badges. One example of that was the religious-themed Inspire funds, which did so in August 2022, Stankiewicz noted.
That fund provider uses a number of negative screens, including one to exclude companies with affiliations in LBGT activism.
Inspire removed ESG from its product names “due to pervasive liberal activism under the guise of ‘ESG,’” the company stated on its site. “The term has received backlash from conservatives and has become broadly perceived as the antithesis of biblical values.”