Investor money into ESG funds on the rise and one passive fund is cleaning up

According to new data from Morningstar, most money going into ESG-focused funds is going into index trackers.

Funds and Investment Trusts February 25, 2020 by Tom Bailey

One of the more cynical interpretations of the rise of ESG investing is that it offers active managers a chance to restate their worth, as more investors shift towards low-fee passive investment products. While the market may be harder to beat, active managers can better determine the ESG credentials of companies.

Whatever the truth of that interpretation, there still seems to be ample demand for passive products from investors seeking ESG exposure. According to new data from Morningstar, most money going into ESG-focused funds is going into index trackers.

The data for January 2020 showed that a total of £1.3 billion was invested in ESG or sustainability focused funds in 2020. Over half of which went into a low carbon equity tracker.

That, however, was largely explained by the popularity of one passive fund in particular: BlackRock ACS World Low Carbon Equity Tracker. The index tracker saw the highest net inflows of all funds in January, netting more than £700 million.

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Morningstar notes: “Even though this fund is on what we would consider to be the light end of the sustainability scale, its popularity demonstrates the building investor interest in the ESG space.”

According to Morningstar, the tracker itself was created for large pension funds looking for ESG-themed pension funds. This, the data provider says, explains the large inflows into the fund. 

Overall, however, flows into sustainable vehicles were at a record high, among both passive and active funds. Royal London, for instance, was among the top fund houses for inflows, in part owing to the appeal of its own “ethical” and ESG-focused active funds.

Data from January showed that overall UK investor sentiment was up, with a net total of £812 million into UK-domiciled funds in January. This was the third month in a row in which UK-domiciled funds saw net inflows, a marked turnaround from the first 10 months of 2019, which saw net outflows of over £24 billion.

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