No Surprise: Sustainability Funds Outperform the Market - Despite COVID-19
The following is an excerpt from an article on the Responsible Investor website.
The megatrend of 2019 was sustainability. Led by climate activist Greta Thunberg, youth across the world demanded politicians and business owners engage in immediate action on climate and sustainability. Investors followed in droves: According to research by Morningstar, estimated net flows into open-end and exchange-traded sustainable funds that are available to US investors totaled $20.6bn for 2019. This was nearly four times the previous annual record set in 2018.
The megatrend of 2020 so far is coronavirus, and with it a tendency to doubt that sustainability will remain a priority. Locked up in their homes and out of their schools, the youth climate movement has come to a near standstill. “Sustainability pays off only in economically rosy times", we now hear critics say. “As soon as a crisis hits, priority shifts elsewhere."
But does it really? Have last year's investments in sustainability-themed funds been a bad idea?
Recent data suggests that the opposite is true. Across the board, sustainability funds have outperformed their peers since the COVID-19 crisis began and across the first quarter, both in developed and emerging markets. Again, figures from Morningstar suggest that in the period through February 28, which saw the biggest downturn in stock prices globally, “the returns of nearly two thirds (65%) of sustainable equity funds ranked in their category's top half. More than four tenths (43%) placed in the top 25% of their group, and only 10% were in their peer group's bottom 25%". Morningstar data also shows that in March, when market activity saw further downturns as countries began to implement lockdown measures, 62% of ESG-focused large-cap equity funds outperformed the global tracker.
Also while you're here, take a look at Renat's other recent blog posts on our own South Pole blog.