Young Research & Publishing Inc.

Investment Research Since 1978

Disclosure

  • About Us
    • Contributors
    • Archives
    • Dick Young’s Safe America
    • The Final Richard C. Young’s Intelligence Report
    • You’ve Read The Last Issue of Intelligence Report, Now What?
    • Dick Young’s Research Key: Anecdotal Evidence Gathering
    • Crisis at Vanguard
  • Investment Analysis
    • Bonds
    • Currencies and Gold
    • Dividend Investing
    • ETFs & Funds
    • Investment Strategy
    • Retirement Investing
    • Stocks
    • The Efficient Frontier
  • Investment Counsel
  • Dynamic Maximizers®
  • Retirement Compounders®
  • Free Email Signup

Is Your ESG Fund Betting on the Next Big Short Target?

October 27, 2020 By Jeremy Jones, CFA

By Profit_Image @ Shutterstock.com

At the Financial Times, Billy Nauman examines ESG funds and their potential as victims of short-sellers. He writes:

Whenever big money starts flowing into a hot new sector, it seems inevitable that companies that list on the stock market fall short of hype and hope around them.

One of the market’s current hottest areas is environmental, social and governance investing. And, like the cryptocurrency boom and cannabis stock surge, the flood of money has been followed closely by allegations of fraud.

These claims are often made by activist investors and short-sellers, who bet on the fall in value of stock or bond. As interest in ESG has surged, they have been on the prowl, looking for companies where investors have overlooked flaws and fraud in the rush to gain exposure to a technology or sector.

While often assailed by companies under attack, these short-sellers play a key role in identifying these issues.

Shorts are important in the ESG space because it is so “white hot” right now, says Rob Furdak, chief investment officer for ESG of Man Group, a hedge fund. “People are looking for any kind of sustainable angle and want to jump on the bandwagon when they see the potential for these new technologies to really be game changers,” he says.

Two high-profile cases so far have involved the short-seller Hindenburg Research. It has accused Nikola, an electric truck company, and Loop Industries, a Canadian plastics recycler, of exaggerating their technological capabilities. Both companies operate in areas in an ESG sweet spot — technology that brings environmental benefits.

Nathan Anderson, founder of Hindenburg, says the ESG sector is particularly fertile ground for companies that overstate what they do. “When people feel good about giving away their money or investing their money, they’re less likely to scrutinise where it’s going,” he said.

Nikola, which had won the backing of activist Jeff Ubben and General Motors, was accused by Hinderberg of an “intricate fraud” that had exaggerated its technology and faked product launches.

The company called the report “false and misleading” and issued a detailed rebuttal of the claims. However, it did admit one of the firm’s allegations — that it rolled one of its trucks down a hill in a video that made the vehicle look like it was capable of moving under its own power.

Hinderberg also targeted Loop, which claims to have revolutionary technology that can extract usable plastic polymers from garbage. Hindenburg alleged the company never actually found a way to make its process work at scale, saying Loop’s claims were “technically and industrially impossible.”

Loop said Hindenburg’s claims were “unfounded, incorrect or based on the first iteration of Loop’s technology”.

Both Loop and Nikola saw their share prices plummet after Hindenburg published its research and are now subject to US government inquiries.

In an ideal world, errant companies would be caught by the regulators or exposed by investors doing their due diligence before they ever gained any scale. But in reality, it doesn’t always work that way. Academic research has shown that short sellers play a “significant role in identifying, uncovering, and mitigating the effects of financial misconduct.”

Read more here.

Share this:

  • Email
  • Twitter
  • Facebook

You Might Also Like:

  • Are Most ESG Funds Just Tech Funds in Disguise?
  • Potential Index Fund Component Loses 98%
  • Short-Sellers Bet Against Twitter
  • Author
  • Recent Posts
Jeremy Jones, CFA
Jeremy Jones, CFA, CFP® is the Director of Research at Young Research & Publishing Inc., and the Chief Investment Officer at Richard C. Young & Co., Ltd. Richard C. Young & Co., Ltd. was ranked #5 in CNBC's 2021 Financial Advisor Top 100. Jeremy is also a contributing editor of youngresearch.com.
Latest posts by Jeremy Jones, CFA (see all)
  • Despite All the Money Involved, Crypto Is Still a Wild Market - August 5, 2022
  • Big Corporations Making Big Investments - August 4, 2022
  • HEDGE FUND CARNAGE: Second Worst Performance Ever - August 3, 2022

Search Young Research

Most Popular

  • The Key Ingredient to an $8 Million Estate Is This
  • SCHUMER-MANCHIN: An "Inflation" Bill that Doesn't Fight Inflation
  • NO GO ZONES: The Wealthy Protected, the Rest Left to Rot
  • American Manufacturers ALARMED by Schumer-Manchin Tax Hike Plan
  • Do Governments Cause Recessions On Purpose?
  • The Power of a Compound Interest Table
  • Do You Have $500,000 in Savings? Avoid This Nightmare
  • Is a Housing Market Crash Next?
  • Vanguard Wellesley (VWINX) vs. Wellington (VWELX): Which Fund is Best?
  • Field of Dreams: You Too Can Live Like a Billionaire

Don’t Miss

Default Risk Among the Many Concerns with Annuities

Risk and Reward: An Efficient Frontier

How to be a Billionaire: Proven Strategies from the Titans of Wealth

Could this Be the Vanguard GNMA Winning Edge?

Cryptocosm and Life After Google

Warning: Avoid Mutual Fund Year End Distributions

Is Gold a Good Long-term Investment?

How to Invest in Gold

Vanguard Wellington (VWELX): The Original Balanced Fund

What is the Best Gold ETF for Investing and Trading?

Procter & Gamble (PG) Stock: The Only True Dividend King

The Dividend King of the North

You’ll Love This if You’re Dreaming of an Active Retirement Life

RSS The Latest at Richardcyoung.com

  • A Conservative Case for Optimism
  • What’s Up in the Amazon?
  • Who Is Alex Jones?
  • DESANTIS RESISTS: Suspends Soros-Funded Destruction of America
  • Happy Hour Friday!
  • Is China Planning to Blockade Taiwan?
  • Big Tech in Times of War
  • Auto Industry Lobbyists Want Americans to Subsidize Chinese Battery Production
  • The Higher Taxes, Bigger IRS, and More Inflation Act of 2022
  • GREAT RESET: Globalists Plan to Transform Ukraine with Billions in Taxpayer Dollars

About Us

  • About Young Research
  • Archives
  • Contributors

Our Partners

  • Richard C. Young & Co.
  • Richardcyoung.com

Copyright © 2022 | Terms & Conditions

 

Loading Comments...
 

    loading Cancel
    Post was not sent - check your email addresses!
    Email check failed, please try again
    Sorry, your blog cannot share posts by email.