Sustainable funds in the UK market attracted more inflow than conventional funds in Q1 2023 according to the latest research from Refinitiv Lipper. But total net flows were negative.
Long-term sustainable funds attracted £4.11bn ($5.19bn) in the first quarter on this year, with £3.81bn ($4.81bn) going into equity funds and £2.58bn ($3.26bn) to their conventional peers.
The most popular classification was Equity Global funds, which netted £2.34bn ($2.95), with US and emerging market equity following behind.
Remarkable figure
More than half of passive fixed income flows went into sustainable funds, a remarkable figure considering that they make up just 10% of assets under management.
Blackrock consolidated its position as the leading sustainable fund provider to the UK market, taking £3.5bn ($4.42bn) – £3bn ($3.79bn) of which was in equity funds. Blackrock’s take amounts to more than twice as much as the other nine providers put together.
Total net flows, at £6.69bn ($8.44) were negative, breaking down as inflows of £2.58bn ($3.26bn) into conventional funds and £4.12bn ($5.20bn) to sustainable funds. Sustainable equity took the lion’s share of £3.81bn ($4.81bn). The report notes that: “Sustainable flows are flattered by the heavy redemptions from money market funds (£24.53bn), where this is overwhelmingly conventional”.
Much to play for
Sustainable bonds took just 6% of conventional peers, a total of £393m ($428m), prompting the report to observe that: “This is despite the fact that the asset class has enjoyed the bulk of inflows, so whoever cracks the sustainable fixed income market has a lot to play for in these market conditions.”
In the fund classification rankings, coming in behind Equity Global were;
- Equity US;
- Equity Emerging Markets Global;
- Bond GBP Corporates;
- Equity Europe ex UK;
- Equity Theme – alternative energy;
- Bond Global Corporates LC;
- Bond Global Short Term;
- Absolute Return Bond GBP;
- Equity Japan.
Redemptions from sustainable classifications are, says the report, “still tiny when compared with conventional flows”. Bond GBP saw the highest level of sustainable redemptions, followed by Sustainable Equity UK.
Comparing sustainable classifications to conventional equivalents, the report notes that with the rally in the oil and gas sector “it’s not surprising to see conventional funds outperform their sustainable peers over one and three years (-4.33% versus -3.24%, and 42.82% versus 46.46%, ESG to conventional)”. This prompts the observation that “The degree of oil and gas’s outperformance (and the deflation of tech) is less of a headwind, more a force 8 gale”.
Finally, the report says that “it’s interesting that sustainable funds beat their conventional peers by 71 basis points” despite the fact that overweighting big tech stocks at the expense of big emitters was a favoured method of funds building a sustainability rep. “Given the outperformance of energy over the period,” says the report, “there’s clearly something else going on here, and worthy of further investigation”.