Responsible Investment News

Ethical investments are outperforming traditional funds

Morningstar examined 745 sustainable funds and compared them against 4,150 traditional funds, and found they matched or beat returns in all categories – whether bonds or shares, UK or abroad.

“Average returns and success rates for sustainable funds suggest that there is no performance trade-off associated with sustainable funds. In fact, a majority of sustainable funds have outperformed their traditional peers over multiple time horizons,” it says.

Over 10 years, the average annual return for a sustainable fund invested in large global companies has been 6.9% a year, while a traditionally invested fund has made 6.3% a year.

The outperformance continued during the coronavirus crisis. “In all but one category considered in the study, sustainable funds outperformed, with average excess returns in Q12020 ranging between 0.09% and 1.83% across categories,” Morningstar says.

One reason may be that many US tech stocks, popular among environmental investors, have soared during the crisis, while shares in oil, gas and coal companies have plummeted. The Nasdaq index of US tech stocks has recovered completely from the coronavirus crisis, reaching new highs this week, while the oil giant ExxonMobil is trading at $53 compared with $70 before the lockdown.

The Morningstar researchers noted that sustainable funds are longer-lasting than their peers. One of the tricks of the asset management industry is that funds that do badly are quietly removed – usually by merging them with another, better-performing fund. This has the effect of flattering the overall performance figures, suggesting that investors are doing better over the longer term than they really are. Morningstar found that three-quarters of sustainable funds lasted 10 years or more, compared with less than half of traditional funds.

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