Abstract
<h3>Practical Applications Summary</h3> In <b>The Alpha, Beta, and Sigma of ESG: <i>Better Beta, Additional Alpha?</i></b>, from the September 2019 edition of <b><i>The Journal of Portfolio Management</i></b>, <b>Brian Jacobsen</b>, <b>Wai Lee</b> (both of <b>Wells Fargo Asset Management</b>), and <b>Chao Ma</b> (of <b>Wells Fargo Investment Institute</b>) examine whether the returns of ESG stocks differ from those of non-ESG stocks. They discover that after factor-adjusting the returns and risks of ESG and non-ESG stocks, portfolios of ESG stocks with positive alpha had return-to-risk features comparable to those of portfolios of non-ESG stocks with positive alpha. Portfolios of ESG stocks without statistically significant alpha displayed lower residual volatility than portfolios of non-ESG stocks without statistically significant alpha. The authors suggest that portfolio managers should focus on factor-adjusting their ESG portfolios to match non-ESG portfolios. <b>TOPICS:</b>ESG investing, equity portfolio management, portfolio management/multi-asset allocation
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