Research and analysis to keep sustainable investors up to-date on a broad range of topics that include trends and developments in sustainable investing and sustainable finance, regulatory updates, performance results and considerations, investing through index funds and actively managed portfolios, asset allocation updates, expenses, ESG ratings and data, company and product news, green, social and sustainable bonds, green bond funds as well as reporting and disclosure practices, to name just a few.
A continuously updated Funds Directory is also available to investors. This is intended to become a comprehensive listing of sustainable mutual funds, ETFs and other investment products along with a description of their sustainable investing approaches as set out in fund prospectuses and related regulatory filings.
Many questions have surfaced in recent years regarding sustainable and ESG investing. Here, investors and financial intermediaries will find materials that describe the various approaches to sustainable investing and their implementation. While sustainable investing approaches vary and they have thus far defied universally accepted definitions, many practitioners agree that they fall into the following broad categories: Values-based investing, investing via exclusions, impact investing, thematic investments and ESG integration. In conjunction with each of these approaches, investors may also adopt various issuer engagement procedures and proxy voting practices. That said, sustainable investing approaches will continue to evolve.
In addition to periodic updates regarding sustainable investing and how this form of investing is evolving, investors and financial intermediaries interested in implementing a sustainable investing approach will also find source materials that cover basic investing themes as well as asset allocation tactics.
Thoughts and ideas targeting sustainable investing strategies executed through various registered and non-registered sustainable investment funds and products such as mutual funds, Exchange Traded Funds (ETFs), Exchange Traded Notes (ETNs), closed-end funds, Real Estate Investment Trusts (REITs) and Unit Investment Trusts (UITs). Coverage extends to investment management firms as well as fund groups.
Sustainable investing performance wrap-up – July 2024
The S&P 500 posted its best single day return of the month, up 1.58%, on July 31st, to end the month of July with a total return gain of 1.2% (this was before giving up 6.1% over the first three days of August when markets dropped across the globe, presumably instigated by weaker than expected…
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The Bottom Line: Bonds outperformed the S&P 500 while small cap and value stocks led; a selection of ESG indices largely underperformed their conventional counterparts.
Bonds outperformed the broad stock market while small cap stocks and value stocks shine
The S&P 500 posted its best single day return of the month, up 1.58%, on July 31st, to end the month of July with a total return gain of 1.2% (this was before giving up 6.1% over the first three days of August when markets dropped across the globe, presumably instigated by weaker than expected US jobs report. Markets pretty much recovered by the end of the second full week of August). The Nasdaq 100 dropped 1.6% in July, value outperformed growth stocks and small as well as mid-cap stocks added 10.2% and 5.9%, respectively, in a rotation by investors from mega cap stocks to smaller companies and other sectors fueled by falling inflation and the anticipation of interest rate cuts that will stimulate wider economic growth that will benefit smaller companies. The Russell 2000 small-cap index has surged 7% since July 11 to the end of the month, while the S&P 500’s gains have been led by financials, energy, and real estate sectors. Magnificent Seven tech stocks (i.e. Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia and Tesla) had seen declines, exacerbated by a global sell-off in semiconductor companies.
US bond prices got a lift as yields on 10-Year US Treasury securities ended the month at 4.1%, dropping by 27 basis points from 4.4% at the end of June in anticipation of lower rates. The Bloomberg US Aggregate Bond Index outperformed the S&P 500 in July, adding 2.3%. Year-to-date and 12-month gains were solidified, coming in at 1.6% and 5.1%, respectively.
While emerging markets eked out a narrow 0.3% uptick in July, the MSCI ACWI ex USA and MSCI EAFE indices exceeded the results achieved by larger cap US indices, adding 2.3% and 2.9%, respectively.
Focused sustainable mutual funds and ETFs, a total of 1,468 funds/share classes accounting for $349.4 billion in net assets, posted an average return of 2.2% in July
Against this backdrop, the universe of focused sustainable mutual funds and ETFs, a total of 1,468 funds/share classes accounting for $349.4 billion in net assets, posted an average return of 2.2% in July. The same funds added 7.7% over the year-to-date interval and 10.5% across the trailing twelve months. Equity funds gained an average 2.5%, 9.4% and 11.3%, in July, year-to-date and trailing twelve months while fixed income funds recorded gains of 1.7%, 2.5% and 6.4% over the same time intervals. In a reversal of their relative performance throughout the second quarter, a selection of six domestic and foreign MSCI ESG Leaders indices largely underperformed their conventional counterparts in July. This was a turnaround from the dominance of outperforming indices throughout the second quarter. Over the intermediate and long-term intervals, relative performance results are mixed.
The best performing sustainable funds in July were ruled by funds with exposure to small-cap stocks
The roster of best performing sustainable funds in July, which was ruled by mutual funds and ETFs with exposure to small cap stocks, recorded an average gain of 11.6%. Even the best performing fund in July, the small $5.3 million levered thematic index tracking Direxion Electronic and Autonomous Vehicles Bull 2X Shares that registered a gain of 28.5% was dominated by exposures to small and mid-cap stocks.
Notes of Explanation: Funds listed in order of one-month returns. In the case of mutual funds with multiple share classes, only the best or worst one-month returns are listed. Sources: Morningstar Direct and Sustainable Research and Analysis LLC.
Dominant approaches employed by the top 10 performing funds included exclusions followed by ESG integration
In terms of sustainable investing approaches weighted by assets under management, the same top 10 funds were led by an exclusionary approach to sustainable investing, followed by ESG integration and engagement, or an active ownership approach that may include proxy voting, dialogue with company management and sponsorship of shareholder resolutions, and public policy advocacy.
Notes of Explanation: Chart reflects sustainable strategies based on $ assets under management. Some funds have adopted more than one sustainable investing approach. Source: Sustainable Research and Analysis LLC
The bottom 10 performing funds were dominated by energy transition funds
At the same time, the bottom 10 performing funds generated an average return of 4.9% in July, ranging from -10.0% to -2.7%, and -3.6% over the trailing twelve-month period. The group was dominated by energy transition funds, including the poorest performing fund in July, the $183.3 million KraneShares California Carbon Allowance ETF. In addition to six thematic focused funds, the segment features funds that have adopted various sustainable strategies, some more than one, including impact and targeting the achievement of social values, environmental challenges, sustainability, and inclusiveness as well as ESG integration, exclusions and engagement.
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