Performance vs. morals: Do investors lose out with sustainable funds?

Daar waar in Nederland de week van 14 tot 20 november is uitgeroepen tot de Week van het Duurzaam Beleggen (waarover u op deze site de komende weken meer zult lezen, en waar wij als Morningstar ook actief aan deel zullen nemen), is het deze week in het Verenigd Koninkrijk de zogenaamde Good Money Week. 

San Lie 21 oktober, 2015 | 10:16 Jon Hale

In dat kader deden mijn Amerikaanse collega Jon Hale en ik onderzoek naar de prestaties van als duurzaam geoormerkte beleggingsfondsen, wereldwijd. Zoals veel academische studies ook inmiddels laten zien: duurzame fondsen hoeven zeker niet achter te blijven bij hun conventionele soortgenoten. Ze lijken het zelfs beter te doen...

Lees hieronder het artikel zoals deze week verschenen op Investment Week.

Performance vs morals: Do investors lose out with sustainable funds?

ESG FACTORS CAN HAVE POSITIVE IMPACT ON PERFORMANCE

Jon Hale and San Lie of Morningstar analyse whether funds with a ‘socially conscious’ theme really do underperform their more mainstream counterparts, or if this is just a modern myth.

One of the concerns about sustainable investing in its various forms is it comes with a financial performance penalty.

Yet more and more academic and industry studies are demonstrating that sustainable investing does not underperform conventional investing, and there is mounting evidence that incorporating environmental, social, and governance (ESG) factors in to an investment process can have a positive impact on performance. In a 2014 meta-study, researchers at Oxford University analysed nearly 200 studies, reports and articles on sustainability and found 90% of studies on the cost of capital show sound sustainability standards lower the cost of capital of companies. In addition, 88% of the research shows solid ESG practices result in better operational performance of firms, while 80% of the studies reveal stock price performance of companies is positively influenced by good sustainability practices
A Morgan Stanley study of US-based mutual funds and separately managed accounts, using Morningstar data, also concluded: “sustainable investments usually met and often exceeded the performance of comparable traditional investments on both an absolute and risk-adjusted basis”.

On a global level, Morningstar’s database has 1,730 funds tagged as ‘socially conscious’. Using the Morningstar rating for funds as a measure of risk-adjusted return (ranging from one star for the worst performing funds to five stars for the best performing funds in a category), for the global universe of socially conscious funds the star ratings skew positively – in line with the findings in the Morgan Stanley survey.

Looking in more detail at the UK equity, Europe large-cap blend equity, and euro corporate bond categories, socially conscious funds are found to generally perform on a par with their conventional peers (see chart), meaning the view that sustainable or ethical funds are underperformers is not true. 

As such, the evidence is fairly clear that investors do not have to give up returns in exchange for having a sustainable portfolio. As with any type of investment approach, though, some ESG managers are better than others, and sustainable investors still need to do their due diligence in terms of fund selection.

UK equity
The Morningstar category UK large-cap blend equity contains nine socially conscious funds including Aberdeen Responsible UK Equity and Royal London UK Ethical Equity fund.
Using the Morningstar rating for funds as a measure of risk-adjusted return, most of the funds perform in line with the category. Legal & General Ethical trust is the best performing socially conscious fund on a long-term basis, returning 4.4% annualised over the last 15 years.

Europe large-cap blend equity
Investors looking for a sustainable European large-cap blend fund have more choice in the sustainable universe, with 50 socially conscious funds, including Candriam Fund Sustainable Equities Europe, Parvest Sustainable Equity Europe and BNY Mellon Sustainability fund. On a risk-adjusted return basis there is again a positive skew, with roughly three quarters of the funds having three, four, or five stars.

Euro corporate bond
The corporate bond area is one sector within which a negative skew in terms of risk-adjusted returns is seen. There are no five-star socially conscious funds in this category, but 12 of the 15 socially conscious funds in the category are rated three or four stars.

 

 

Over de auteur

San Lie  Head Of Research, Morningstar Benelux