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Sustainable funds resilient amidst Covid-19 sell-off, study finds

sustainable_investment_coronavirus_market_volatilityEuropean sustainable funds that implement ESG criteria as part of their key security selection process have been showing signs of resilience throughout the first quarter of this year.

Despite ongoing volatility and the covid-19 sparked market sell-off, a report by Morningstar has found investors continued to show interest in environmental, social, and governance issues.

The European sustainable fund universe pulled in €30 billion in the first quarter of 2020 compared with an outflow of €148 billion for the overall European fund universe.

The year got off to a positive start – before the impact of the virus had truly made itself known – with sustainable funds seeing inflows of €14 billion in January, followed by a “near record-high” €18.5 billon in February.

Then came the March market madness, as covid-19 took its toll worldwide, and investors pulled €3.3 billion from Europe-domiciled sustainable strategies.

“These outflows remain limited relative to the €245.5 billion bled by traditional funds which more than offset the inflows in the previous two months,” a spokesperson for Morningstar said.

Assets in European sustainable funds also dropped by 10.6% in the first quarter of the decade, declining from a record high of €694 billion at the close of last year to €621 billion. But assets in the overall European fund universe took a greater hit, declining by 16.2%, according to the data. 

Over the quarter, active sustainable funds recorded a smaller drop in inflows than passive sustainable funds, the former declining by 26%, while the latter fell by 69%.

Hortense Bioy, Director, passive strategies and sustainability research, Europe, said: “The continued inflows in first-quarter 2020 speak of the stickiness of ESG investments. Investors in sustainable funds are typically driven by their values, invest for the long term, and seem to be more willing to ride out periods of bad performance.”

Fund giant BlackRock, which promised to put sustainability at the heart of its investment process earlier this year, came out on top as most popular choice for investors, with inflows of €4.9 billion. UBS and BNP Paribas also made it into the top three with over €2 billion of new cash.

The study analysed over 2,500 mutual funds and exchange-traded funds domiciled in Europe that implement ESG criteria, or indicate that “they pursue a sustainability-related theme”.

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