On Monday, RBC updated its analysis of actively managed sustainable equity fund holdings for the third quarter of 2024. The report highlighted shifts in the popular US, European, and Canadian stocks among these funds.
Notably, Tesla Inc. (NASDAQ:TSLA) and Synopsys Inc . (NASDAQ:SNPS) were added to the S&P 500 ESG Darlings list, which comprises top holdings in sustainable funds with significant ownership compared to traditional funds.
Meanwhile, Aptiv PLC (NYSE:NYSE:APTV), Enphase Energy Inc . (NASDAQ:ENPH), and Palo Alto Networks Inc. (NYSE:NASDAQ:PANW) were removed from the list due to declines in sustainable fund ownership, with APTV experiencing the most significant drop.
The performance of the S&P 500 ESG Darlings has faced challenges throughout 2024, especially following the US election.
"While performance has stabilized somewhat more recently, we expect the basket to be volatile in the coming months as President-elect Trump™s policy priorities are fleshed out more," the analysts said.
RBC is monitoring valuation indicators for potential long-term investment opportunities, noting that valuations have returned to historical averages and appear attractive or reasonably valued in comparison to sector peers in half of the major Global Industry Classification Standard (GICS) sectors.
The report also revealed higher than usual turnover in the Small/Mid-Cap (SMID) ESG Darlings, with seven new names added and eight removed, largely due to the Russell Reconstitution. The SMID ESG Darlings have also struggled recently, but RBC notes a more favorable valuation setup, with relative valuations dipping below historical averages, though not reaching all-time lows.
In terms of sector trends during the third quarter of 2024, sustainable funds showed increased ownership in Large Cap names from the Information Technology sector, particularly in Software (ETR:SOWGn), with stocks like ServiceNow Inc. (NYSE:NYSE:NOW), Broadcom Inc. (NASDAQ:AVGO), and Oracle Corporation (NYSE:NYSE:ORCL) seeing meaningful ownership increases.
There was also interest in Industrials, such as General Electric Company (NYSE:GE) (NYSE:GEV), and a notable presence of Financials, a sector traditionally underweighted by sustainable funds. Additionally, the Energy Efficiency and Health & Wellbeing themes reached all-time high average positions by the end of the quarter.
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