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ESG Fund Flows Hold Steady in Q1: Morningstar

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Sustainable fund flows did much better in the first quarter compared with overall global funds. Although assets globally in environmental, social and governance focused funds were down 12% to $841 billion at the end of March, according to the latest Morningstar sustainable fund flows report, that was better than assets in the overall global fund universe, which were down 18%. Further, inflows to global sustainable funds were $45.6 billion, compared to outflows of $384.7 billion in the overall fund universe.

Europe continued to dominate the space, according to the report, with 76% of the 3,297 total funds and 82% of the assets ($684 billion). However, the United States, with more than $119 billion in assets (14% of global sustainable assets), had flows of $10.5 billion, “easily eclipsing the previous quarterly record set in 2019′s fourth quarter,” states the report. Also, that jump accounted for a higher proportion of all global sustainable inflows compared with previous quarters.

Yet when looked at monthly, the trend was down. Of the $10.5 billion, $5.2 billion was in January, falling to $1.6 billion in March. Further, 80% of the flows went into passive investments.

“Continued inflows in the first-quarter 2020 speak of the stickiness of ESG investments,” states the report. “Investors in sustainable funds are typically driven by their values, invest for the long term, and seem to be more willing to ride out periods of bad performance.”

Although global inflows to sustainable funds were down 27% from the fourth quarter 2019, they were up 90% over first quarter 2019, according to the report.

There were 102 new fund launches in the first quarter of 2020, compared to 85 launches in the first quarter of 2019, but down from roughly 150 in the fourth quarter of 2019. Also, there was a larger proportion of launches outside of Europe and the U.S. when compared with assets, “indicating an increased desire from asset managers to promote sustainable investing outside of the two largest markets,” the report states.

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