Part 3/11:

Sector Allocation and Market Dynamics

ESG funds tend to overweight in sectors traditionally viewed as environmentally and socially responsible—namely technology, healthcare, and industrials—while staying underweight in energy, a sector that enjoyed significant gains last year. This sector tilt explains some of the volatility and the underperformance of ESG funds in 2022. Conversely, in 2023, a reversal has favored ESG sectors, reflecting the changing economic landscape.