Dec 12 (Reuters) - Parnassus, one of the largest asset

managers to offer products tied to environmental, social or

governance considerations, launched its first exchange-traded

funds on Thursday amid a difficult environment for the strategy.

As performance of U.S. ESG funds lag broader indexes,

investor interest is shrinking. According to data from

Morningstar Inc. ( MORN ), the average U.S. ESG-focused ETF has

gained only 11% so far this year, compared to 27.6% for the

Standard & Poor's 500 index. The number of ESG funds in the U.S.

fell 8% in the first nine months of 2024 to only 595, with some

closing and others abandoning their ESG mandate.

Some segments are struggling more than others: Morningstar ( MORN )

reported last month that U.S. climate funds are likely to see

their first year of net outflows this year since it began

tracking them as a separate category in 2018.

"Clearly the environment is not favorable to this type of

new offering, with closures exceeding launches," said Hortense

Bioy, London-based global director of sustainability research

for Morningstar ( MORN ).

But Benjamin Allen, CEO of Parnassus, says the 40-year-old

firm has ridden out other cycles and remains focused on picking

high-quality companies that also consider the impact of their

decisions on environmental and social issues on long-term

returns. According to the Parnassus website, comparable mutual

funds have posted gains of 17% to 22% so far this year.

"This is not virtue-signaling; this has a material impact on

returns," he told Reuters.

Information on the holdings of the new ETFs, the Parnassus

Core Select ETF and the Parnassus Value Select ETF

will not be available until after their launch. Allen

said he expects there to be overlap between each ETF and similar

long-established mutual funds, although the ETFs will have no

more than 25 holdings.

The $30 billion Parnassus Core Equity Fund mutual fund

includes positions in stocks like Nvidia ( NVDA ) and Microsoft ( MSFT )

, as well as Intercontinental Exchange ( ICE ) and Waste

Management. The $5.1 billion Parnassus Value Equity Fund

owns stakes in Bank of America ( BAC ) and Deere & Co. ( DE ).