Sustainable funds outperform ASX
Every single Australian-domiciled ‘sustainable’ fund outperformed the ASX 200 over the three months to 31 March, 2020, putting the rest to theory that sustainable does not mean sacrificing return, according to FE Analytics data.
In the Australian Core Strategies universe, there were 26 funds which described themselves as ‘sustainable’ including 14 which focused exclusively on Australian assets.
Sustainable funds tend to screen for companies which demonstrate leading environmental, social and corporate governance (ESG) practices while avoiding those which negatively impact society or the environment.
Over the three months to 31 March, 2020, the ASX 200 lost 23.1% while all 26 of the funds, both Australian and global, had managed to lose less than this.
The best-performing funds were those which focused on sustainable bonds rather than equities; Pendal Sustainable International Fixed Interest and Pendal Sustainable Australian Fixed Interest which returned 5.3% and 3%.
In equity funds, the best performers were VanEck Vectors MSCI International Sustainable Equity ETF which lost 4.8% and Pendal Sustainable Conservative which lost 5.1%.
Performance of four-best sustainable funds versus ASX 200 over three months to 31 March, 2020
The rule also applied over a longer time period with the index losing 14.4% over one year to 31 March and all funds outperforming this, including 10 funds which reported positive returns over the period.
Over one year, the sustainable fund reporting the highest return was VanEck Vectors MSCI International Sustainable Equity ETF with returns of 11.5%.
However, while all funds had beaten the Australian stockmarket, only half of the globally-focused funds managed to outperform the MSCI World and MSCI ACWI indices which both lost 9% over the three months.
Dan Lefkovitz, strategist for Morningstar’s indexes product group, said a reason for the outperformance of sustainably-focused funds could be their choice of stock selection.
“ESG indices or funds are more likely to select companies that are competitively advantaged and financially healthy, which undoubtedly contributes to their ability to reduce volatility. These type of companies are sturdier, more prepared for the long term and more able to withstand a crisis,” he said.
“Indeed, energy, a consistent underweight for ESG indexes, was the worst-performing sector thanks to an oil price war and falling demand which benefitted ESG funds but it is not the only reason.”
AUTHOR
Laura Dew
Recommended for you
Infrastructure assets are well-positioned to hedge against global uncertainty and can enhance the diversification of traditional portfolios with their evergreen characteristics, an investment chief believes.
Volatility in US markets means currency is becoming a critical decision factor in Australian investors’ ETF selection this year.
Clime Investment Management is overhauling the selection process for its APLs, with managing director Michael Baragwanath describing the threat of a product failure affecting clients as “pure nightmare fuel”.
Global X will expand its ETF range of exchange-traded funds next month with a low-cost Australian equity product as it chases ambitions of becoming a top issuer of ETFs in Australia.
