Concentrated strong-performing ESG equity funds win the battle of flows
Assets in global ESG equity products nearly doubled (+98%) from 2019 to 2021.
Investment Metrics (IM) studied 52 funds from 45 asset managers in the Global ESG equity peer group1 to understand performance and the characteristics of the products winning the most business. Leading managers include Generation, Nordea & Pictet.
- 80% of global ESG equity products are outperforming over three years, but these products have struggled so far in 2022
- Global ESG equity products have seen billions of inflows since 2019, while Global Large Cap equity products suffered strong outflows
- When choosing products, investors prefer concentrated, strong performing products that integrate ESG into their research
- Most global ESG equity products are Europe-domiciled
- Notably, few of these products had a Value focus
The median return for the Global ESG equity peer group was -15.6% for the second quarter of 2022, narrowly outperforming the MSCI ACWI index by 6 basis points.
However, year-to-date (through June) the story is quite different with 78% of ESG equity products underperforming the benchmark. In fact, the median underperformed the benchmark by 2.5%.
Despite this, 80% of the products outperformed over a three-year time horizon. (Figure 2) – with a three-year median return of 8.54%, outperforming the benchmark by 2.3% and the broader IM Global Large Cap Equity Peer Group by 1.2%.
Inflows for global ESG equity products, outflows for global large cap
Over the last eight years, we have seen net outflows from Global Large Cap equity products. In 2021 outflows reached $100 billion.
Since 2019 Global ESG equity products have done the opposite enjoying $25 and $35 billion of net inflows in 2020 and 2021. Most of these assets are domiciled in Europe.
What characterizes successful global ESG equity products?
The biggest global ESG equity funds by assets under management tend to have a focused approach with on average 50-70 holdings. The more concentrated the more powerful the performance.
The top 20 funds by size have performance averaging in the 29th percentile compared to the broader IM Global Large Cap Equity peer group (so they perform better than 70% of that peer group). Half of the large ESG funds are in the top quartile.
So, concentrated, strong performing funds that integrate ESG into their investment process win the most business.
Global ESG equity peer group by type (universe of 52 funds)
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