1Q 2018 Sustainable Funds Review: Modest Cash Inflows Coincide with Better than Index Performance in Quarter Exposed to a Number of Material ESG Developments

NEW YORK, April 30, 2018 /PRNewswire/ -- Three ESG investing issues in particular came into clearer focus during the first quarter of 2018: gun violence and the use of semi-automatic style weapons in connection with the Parkland, Florida mass shooting, the revelations about Facebook's data protection and privacy breaches as well as the continuing actions on the part of the Trump administration's Environmental Protection Agency (EPA) to roll back environmental regulations.

Against this backdrop, in a report just released by Sustainable Research and Analysis, author Henry Shilling notes that sustainable investing funds, including mutual funds, exchange-traded funds (ETNs) and exchange-traded notes (ETNs), added modest levels of net new cash during the 2018 first quarter.  According to Shilling, "an estimated $2.8 billion, or 1.1%, in net new cash flowed into the sustainable investment funds segment during the three month interval while a multiple of this value, or $18.8 billion, was added by repurposed funds and funds that were reclassified." 

Sustainable funds ended the first quarter of 2018 with a total of 305 mutual funds and 67 ETFs as well as ETNs, for a total of 909 funds and share classes, with $272 billion in assets under management.

During the same time interval, traditional asset managers continued to reshape the sustainable investing landscape by adopting environmental, social and governance (ESG) integration strategies into existing funds and, in the process, moved into the ranks of the top 10 sustainable investing firms. 

First quarter performance results posted by sustainable large-cap U.S. equity and investment-grade intermediate-term bond funds that integrate ESG, while negative, exceeded returns recorded by their non-ESG counterpart indexes.  Large-cap U.S. sustainable equity funds, as measured by the performance of the SUSTAIN Large Cap Equity Fund Index, generated a return of -0.48% versus -0.76% for the S&P 500 Index, or a 28 basis point advantage.  Investment-grade sustainable bond funds, as measured by the SUSTAIN Bond Fund Indicator, logged a loss of -1.24% versus -1.46% for the Bloomberg Barclays U.S. Aggregate Bond Index.  

Three relevant and potentially material ESG related developments that either unfolded or continued to play out in the first quarter included the mass shooting of school kids in Parkland, Florida, Facebook data security and privacy breaches and the rollback of environmental regulations in the U.S. These occurrences reflect the relevance of ESG considerations in fundamental investment analysis. The report also reveals that, for investors in index funds who may wish to do so, the path to divestment from exposures to the firearms industry is challenging. 

Also, the report notes that in a continuing shift, investors, including passive fund investors, are taking a more public position on governance issues while environmental and social considerations in proxy voting are expected to reach record numbers during the 2018 proxy season.   

The complete report, "1Q 2018 Sustainable Funds Review" is available at: https://www.sustainableinvest.com/1q-2018-sustainable-funds-review.

SOURCE Sustainable Research and Analysis