When Strive Asset Management’s anti-ESG fund, Strive U.S. Energy ETF, attracted $100 million in its first week last August, asset managers and advisors alike took notice, but interest in the asset class has waned ever since, according to new analysis from Morningstar.

THe research firm found that the firm's asset inflows peaked at $373 million in the third quarter of 2022, mostly due to Strive’s energy ETF.

While assets in anti-ESG reached $2 billion by the end of Q1 2023, it was primarily due to product development, according to Morningstar’s new report.

“In the past year, criticism of sustainable and environmental, social, and governance investing has become louder and increasingly politicized in the United States. Against this backdrop, new funds have emerged, which we call ‘anti-ESG funds.’ In this study, we took a look at this quickly evolving space, not to take a position on the value of these investments but to shine a light on trends and differences within the sample,” Morningstar manager research analysts Alyssa Stankiewicz and Mahi Roy said in the report.

Morningstar has identified 26 anti-ESG funds and grouped them into five categories based on their prospectus language and marketing materials: Anti-ESG, Political, Renouncers, Vice and Voters.  \

The funds grew rapidly in 2022, collecting more than five times the previous record of inflows seen in the first quarter of 2021. Strive U.S. Energy ETF, for instance, collected more than $300 million in its first month of operation.

Co-founded by GOP presidential candidate Vivek Ramaswamy, who also serves as the firm’s executive chairman, Strive looked poised to continue this momentum when it launched six more funds over the following three months in 2022.

“But what started as a downpour slowed to a drizzle,” Roy and Stankiewicz said. Strive’s second fund, the Strive 500 ETF STRV, picked up $33 million in its first month on the market and the following five funds attracted less than $2 million on average in each month since launch.

While performance of the funds varies widely, each of the eight anti-ESG funds with a track record greater than one year beat the Morningstar U.S. Market Index in 2022, even though just one of those—USA Mutuals Vice—posted positive returns for the year. The index lost 19.4% points during the year, and the median anti-ESG fund gave up 12.4%.

One dozen of these funds also beat most of their peers to land in the top half of their respective Morningstar categories, the authors found. But returns from October 1, 2022, to March 31, 2023, varied widely. For instance, VanEck Gaming ETF’s 36% gain to Inspire Tactical Balanced ETF’s slight 0.2% loss.

“Each of these funds also outperformed more than half their respective Morningstar Category peers, hinting that strong returns may have been driven by more than stylistic tilts,” the authors said.

“The 26 anti-ESG funds in our sample are a young and disparate bunch. As of March 2023, only eight anti-ESG funds claimed track records longer than one year; the remaining 18 funds launched later in 2022 or—in the case of Inspire's funds—renounced their ESG mandates later in the year,” Roy and Stankiewicz said.

Twelve anti-ESG funds also earned a Morningstar Medal for their index-tracking strategies, meaning the firm believes they should be able to outperform the majority of their Morningstar category peers on a risk-adjusted basis over time.

“The two Silver-rated strategies in our sample—Strive 1000 Growth ETF and Strive Small-Cap ETF— deliver benchmark replication at relatively low fees, driving Above Average Process ratings and the highest rating for price. Expenses are one of the greatest indicators of a strategy’s likelihood of outperformance, so these funds’ cheapest-quintile fees give them a leg up over peers,” Roy and Stankiewicz concluded.

“Anti-ESG funds exhibit above-average exposure to controversial industries, such as fossil fuels and weapons and fossil fuels, and tend to vote against pro-ESG shareholder resolutions—they also pack some surprises,” the authors found. For instance, some have strong exposure to companies that do create positive environmental impact, the authors said.

In that vein, Strive funds invest in Apple, which makes a significant percentage of its revenues from manufacturing energy-efficient consumer appliances and electronics. In the same vein, roughly half of the revenue generated by Nvidia, another Strive holding, comes from the development of energy-efficient graphics cards, Morningstar noted.