Going green is helping hedge funds make green right now.
That's the conclusion of a team lead by RBC Strategist Sara Mahaffy. After poring over the holdings of both traditional and environmental, social, and governance-focused hedge funds, she writes that the stocks ESG funds liked the best in the second quarter are pulling off a difficult trifecta in 2020.
They fared very well during the two major sell-offs of the year — they outperformed during the coronavirus crash in February and March, beat the market dramatically during the March-through-September rally, and stayed above water during the slump that overtook the market after its record high on September 2.
Since then the S&P 500 has dropped 6.1%, and the tech-heavy Nasdaq endured a 10% correction. The bulk of ESG hedge funds' new picks fared better. Overall, their 2020 relative return compared to the S&P 500 stood at 11.7% on September 25.
It's been part of a good run of stock-picking for ESG funds, as Mahaffy also notes that stocks popular with those funds but less-liked by traditional hedge funds are also significant winners.
"Names that are only popular in sustainable funds outperformed," Mahaffy wrote, adding that the stocks aren't especially expensive based on longer-term price metrics. "Names that are only popular in sustainable funds are still trading below their early 2020 highs, though they have been inching up slowly in recent months."
The following stocks were bought by the largest number of actively managed fundamental hedge funds during the second quarter, when the market was on the comeback trail following the February-March drop.
They're ranked from lowest to highest based on their relative return during September's slump — the period stretching from its latest record close on September 2 through the end of trading on September 25.
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20. Illumina
Ticker: ILMN
Sector: Healthcare
Market cap: $44.6 billion
Funds adding in 2Q: 5
Relative return since Sept. 2: -9.8%
Source: RBC
19. Fortinet
Ticker: FTNT
Sector: Information technology
Market cap: $18.9 billion
Funds adding in 2Q: 5
Relative return since Sept. 2: -4.0%
Source: RBC
18. Cadence Design Systems
Ticker: CDNS
Sector: Information technology
Market cap: $29.3 billion
Funds adding in 2Q: 6
Relative return since Sept. 2: -3.5%
Source: RBC
17. Bank of New York Mellon
Ticker: BK
Sector: Financials
Market cap: $30.3 billion
Funds adding in 2Q: 5
Relative return since Sept. 2: -3.4%
Source: RBC
16. PayPal Holdings
Ticker: PYPL
Sector: Information technology
Market cap: $224.8 billion
Funds adding in 2Q: 10
Relative return since Sept. 2: -3.3%
Source: RBC
15. Roper Technologies
Ticker: ROP
Sector: Industrials
Market cap: $41.9 billion
Funds adding in 2Q: 5
Relative return since Sept. 2: -2.4%
Source: RBC
14. HP
Ticker: HPQ
Sector: Information technology
Market cap: $25.9 billion
Funds adding in 2Q: 5
Relative return since Sept. 2: +0.1%
Source: RBC
13. Yum Brands
Ticker: YUM
Sector: Consumer discretionary
Market cap: $27.6 billion
Funds adding in 2Q: 6
Relative return since Sept. 2: +1.1%
Source: RBC
12. S&P Global
Ticker: SPGI
Sector: Financials
Market cap: $85.5 billion
Funds adding in 2Q: 8
Relative return since Sept. 2: +1.1%
Source: RBC
11. Akamai Technologies
Ticker: AKAM
Sector: Information technology
Market cap: $18 billion
Funds adding in 2Q: 8
Relative return since Sept. 2: +1.1%
Source: RBC
20. Amphenol
Ticker: APH
Sector: Information technology
Market cap: $32.2 billion
Funds adding in 2Q: 5
Relative return since Sept. 2: +1.4%
Source: RBC
9. Kimberly-Clark
Ticker: KMB
Sector: Consumer staples
Market cap: $50.2 billion
Funds adding in 2Q: 5
Relative return since Sept. 2: +1.4%
Source: RBC
8. Lowe's
Ticker: LOW
Sector: Consumer discretionary
Market cap: $122.6 billion
Funds adding in 2Q: 5
Relative return since Sept. 2: +1.5%
Source: RBC
7. Fidelity National Information Services
Ticker: FIS
Sector: Information technology
Market cap: $91.5 billion
Funds adding in 2Q: 5
Relative return since Sept. 2: +1.6%
Source: RBC
6. Verisk Analytics
Ticker: VRSK
Sector: Industrials
Market cap: $29.9 billion
Funds adding in 2Q: 11
Relative return since Sept. 2: +1.9%
Source: RBC
5. eBay
Ticker: EBAY
Sector: Consumer discretionary
Market cap: $37.7 billion
Funds adding in 2Q: 5
Relative return since Sept. 2: +3.2%
Source: RBC
4. Keysight Technologies
Ticker: KEYS
Sector: Information technology
Market cap: $18.7 billion
Funds adding in 2Q: 5
Relative return since Sept. 2: +3.6%
Source: RBC
3. Activision Blizzard
Ticker: ATVI
Sector: Communication services
Market cap: $63.1 billion
Funds adding in 2Q: 5
Relative return since Sept. 2: +4.9%
Source: RBC
2. Alexion Pharmaceuticals
Ticker: ALXN
Sector: Healthcare
Market cap: $24.8 billion
Funds adding in 2Q: 6
Relative return since Sept. 2: +8.4%
Source: RBC
1. Vulcan Materials
Ticker: VMC
Sector: Materials
Market cap: $17.7 billion
Funds adding in 2Q: 6
Relative return since Sept. 2: +11.9%
Source: RBC