sustainable funds

Style risk is one of the key risks that sustainable investors need to be aware of. After all, many equity funds with a sustainable mandate tend to lean towards a growth style. Any choice of style brings the likelihood of it falling out of favour with investors over a period of time. So too this year’s growth style.

The idea that sustainable funds will be more expensive than conventional funds due to the extra cost of sustainability research is not necessarily true. Both active and passive funds turn out to be cheaper. Sustainable funds are classified under European regulations into Article 8 and Article 9 funds. Within the latter category, we rank the cheapest options within global large-cap equity funds.

Sustainable funds have grown significantly in the past few years, according to a new study. Sustainable funds’ net assets have increased by as much as 450% since 2018, rising sharply as a share of total fund assets.

Net new money invested in such funds was positive Europe-wide, up 50% in June 2021, reflecting 510% increase of net new money into sustainable funds over the 2018 level.

“All mutual funds become ETFs”, Detlef Glow, head of research at Lipper, wrote recently. Only passive and “real” active remain. Considering the inflow of over 500 billion dollars in the first six months into passive, that sounds plausible. But aren’t Lipper missing something? Passive and the hottest topic of the moment - ESG - do not go well together.

Since the outbreak of the Covid crisis, institutional investors have been increasingly looking towards sustainable funds. However, risk management is proving a major challenge, according to a study by asset manager Schroders.

Shares of companies that are good for the world often manage to strengthen their competitive position at the expense of unsustainable companies. Their growth potential is often still underestimated by the market, according to Hendrik-Jan Boer, senior portfolio manager of Neuberger Berman’s Global Sustainable Equity strategy.

European sustainable funds attracted inflows of €52.6 billion in the third quarter of 2020, bringing total assets in sustainable funds to €882 billion according to figures from Morningstar.

Net inflows were slightly down from the €55.5 billion in the second quarter, but represented a bigger share (40%) of overall European fund flows. The strong inflows were driven by continued investor interest in environmental, social, and governance issues, intensified in the wake of the coronavirus pandemic, as well as the expansion of the sustainable fund universe.