Giving Compass’ Take:
• Paul Bodnar and Lucy Kessler analyze how investments in sustainable equity funds throughout the crisis have outperformed their market counterparts.
• Why is it important to keep our feet on the gas in sustainable investing? What can we do to maintain this momentum throughout and after the public health crisis runs its course?
With global stock markets having plunged into bear market territory, the conventional wisdom is that the coronavirus storm sinks all boats. Or does it? While it’s true that equity funds experienced severe losses pretty much across the board, some fared better than others.
According to research by Morningstar, sustainable equity funds did better than their conventional counterparts. In the first quarter of 2020, the returns from more than 200 open-end and exchange-traded funds (ETFs) in the United States with a sustainability theme were over-represented in the top quartile and top halves of their broader category, such as for indexes comprised of large cap value or small cap growth stocks.
Furthermore, Morningstar research also confirms 24 of 26 environmental, social and governance (ESG) index funds outperformed comparable conventional index funds. As described, sustainable investing — otherwise known as ESG investing, socially responsible investing or impact investing — is a strategy that considers environmental, social and governance factors in investment decisions and active ownership.
Demand for sustainable ETFs has grown since the market downturn. Recent analysis from BlackRock highlights how sustainable ETFs keep attracting assets, in comparison with traditional ETFs, which are experiencing outflows in light of the market selloff. As of March 24, net inflows to sustainable ETFs had reached $14 billion, exceeding half of the 2019 total amount.
ESG funds are not simply doing better as a result of the economic downturn — several of the largest sustainable mutual funds beat the market even prior to the financial meltdown. Here we will look at the outperformance of sustainable investing and how we can reach beyond its existing mandate as we look to rebuild the economy.
Read the full article about sustainable equity funds by Paul Bodnar and Lucy Kessler at GreenBiz.
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