Canadian sustainable fund inflows slow in Q2

Estimated net flows were more muted, though outperformance and momentum of fund launches continued

Canadian sustainable fund inflows slow in Q2

After sustainable investments in Canada showed a strong first quarter of inflows, new figures from Morningstar showed depressed retail appetite for sustainable investing products.

In a new report surveying the Canadian landscape of sustainable funds, the research firm said that net flows clocked in at nearly $1 billion in the first quarter. However, that was followed by much more muted flows of $150 million in the second quarter.

“Given the volatility of global markets during the coronavirus pandemic and observed net outflows in allocation funds on a year-to-date basis, it seems that investors continue to demand these approaches,” Morningstar said in the report.

From an asset perspective, the first half of 2020 closed with Canada-domiciled sustainable investments at $8.8 billion, a 13% increase over the end of 2019. Still, it’s just a sliver of the global market, which amounted to US$71.1 billion at the end of H1.

That parallels a separate analysis by National Bank, which found ESG ETF assets amounting to $2.7 billion by the end of June following a record $1.2 billion in year-to-date inflows. As a share of the total Canadian ETF marketplace, ESG ETF assets amounted to just 1%, but they accounted for 5% of inflows in the first half of 2020.

Fund launches maintained positive momentum in Q2, with four new sustainable investment fund products – three from BlackRock and one from Desjardins – being rolled out. Year-to-date, the country has seen 15 new sustainable investment funds come into existence, expanding the opportunity set for Canadian retail investors to 114, counting funds of funds.

Morningstar observed that considering the fact that 19 sustainable funds were launched in 2019, 2020 is shaping up to be an even better year for introducing new sustainable products.

The trend of sustainable funds outperforming their category peers set in the first quarter continued into the second. Out of 99 funds ranked and identified as sustainable by Morningstar, 58 outperformed their peers within their categories for the three-month period ended on June 30. Counting the entire second half and looking at just the funds whose existence spanned that period, 63 out of 88 placed in the top half of their respective peer groups.

“Notably, all of the funds that identify as using ESG engagement techniques placed in the top half of comparable peers (by Morningstar Category) on a year-to-date basis,” the report said.


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