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Sustainable funds show greater survival rates

sustainable_investingSurvivorship of sustainable investment funds far outstrips that of conventional investment funds, Morningstar research shows.

Seventy per cent of sustainable funds have survived the past ten years and remain available to investors, while only 45.9% of traditional funds have stood the test of time over the same period.

The finding is in the latest of a string of Morningstar papers about ESG funds that are generally positive towards the sector.

The latest report - called ‘How does European sustainable funds' performance measure up?’ – also  says that a growing body of research shows sustainable investing has a positive effect on investment performance. However, other research shows that there isn’t a clear link between a firm’s ESG - environmental, social, and governance - attributes and performance, according to Morningstar.

Morningstar’s report does not specify a source for the criticism but the firm has acknowledged that ‘exclusion’ investing – where ethical funds or funds with inherent religious values exclude certain stocks and sectors – may see lower returns. For example, see here.

But there is no performance penalty for investing in sustainable funds, the Morningstar research claims. Average returns and success rates for sustainable funds across seven Morningstar categories show that a majority of sustainable funds outperformed their traditional peers over multiple time horizons, the firm said. 

Fees, however, still play a crucial role. Lower-cost options tend to have greater odds of success, the research of over 4,900 Europe-domiciled funds found.

Hortense Bioy, regional director of sustainability research, said: “The main takeaway of this study is that investing in sustainable funds doesn’t require taking a performance trade-off. 

“This, however, doesn't mean that all ESG funds have equal odds of success nor that past outperformance will persist. Many factors come into play. And again here, fees play an essential role.” 

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