Sustainable funds saw global slump in new money in second quarter

But they still outperformed the wider market according to Morningstar data

Sustainable funds saw global slump in new money in second quarter
Steve Randall

Concerned investors held back on investing in global sustainable funds in the second quarter of 2022 amid inflation, interest rates, and Ukraine.

There was a 62% drop in net new money in the period compared to the first three months of the year, with funds attracting US$32.6 billion. The US was notable for its $1.6 billion outflows, while Europe led the inflows at $31 billion.

However, the broader market saw net outflows of $280 billion in the second quarter, showing relative strength for the sustainable funds market.

Morningstar data reveals that Canadian-domiciled sustainable funds and ETFs saw inflows decline but remained positive at US$1.5 billion, representing 5% of flows globally (Europe accounted for 94%. April was the main driver of this, mostly from active strategies. Passive strategies posted outflows of $3.8 billion.

Equity funds were notably strong, unsurprising given the higher number of products available to investors. These funds saw 88% of inflows with 9% going to fixed income, and the remainder to allocation and alternative funds.

Canadian funds also recorded a decline in total assets in the second quarter, down 8% quarter-over-quarter to $24.4 billion.

However, Canada outperformed the global market which saw assets decline more than 13% to $2.4 trillion. This was driven by a 15% drop in passively managed assets compared to 6.6% for active. The broader global fund market was down almost 15%.

There were 245 new sustainable funds launched with asset managers continuing the trend of repurposing conventional products into sustainable.

There was a slowdown in new fund launches in Canada, following a period of intense product development in recent months.

Performance declined

Performance of global sustainable funds was weak in the second quarter.

More than three quarters (76%) of sustainable equity funds underperformed their respective Morningstar category, along with 53% of fixed income funds and 78% of allocation funds.

Although few sustainable products available in Canada invest in the oil and gas sector, across the global market this sector outperformed the market but were underweight in sustainable funds.