The Bottom Line: Sustainable fund assets declined by $9.3 billion in October, relative ESG performance was positive, but fund launches and sustainable bond issuances lagged.
Net Assets: Sustainable Mutual Funds and ETFs
Sustainable assets under management attributable to mutual funds and ETFs dropped to $305 billion in October due to market depreciation, for a month-over-month reduction in assets of $9.3 billion, or 3%. This reflects the third consecutive monthly decline and compares to an even wider drop of $16.1 billion in September, or 6.9% of assets. On a year-to-date basis, sustainable fund assets are still up $11.3 billion. Mutual fund assets dropped by $7.1 billion in October, or 3.2%, while ETFs, which account for a slightly lower 29.4% of sustainable fund assets, gave up $3.5 billion or 3.8% of assets. A back of the envelope calculation indicates that the segment in October still experienced net inflows of around $323 million.
New Sustainable Fund Launches
Y-T-D, mutual fund and ETF launches are lagging, reaching 65 at the end of October versus 78 listed in 2022. For the third consecutive month in October, only one new sustainable investment fund was listed. The new Vontobel Global Environmental Change Fund, managed by Vontobel Asset Management, Inc., invests in companies whose products or services contribute to a sustainable objective in areas such as clean energy infrastructure, resource-efficient industry, clean water, building technology, low emission transportation and lifecycle management.
Green, Social and Sustainability Bonds Issuance
Green, social, and sustainability bond issuance data covering Q3 2023, compiled by SIFMA, reflects a decline in issuance globally and in the US. Issuance dropped to $163 billion in Q3, for a decline of $97 billion or 41% as compared to the second quarter. Cumulative 2013 issuance reached $603.8 billion, and based on average quarterly issuance of $201 billion, it looks like the hoped for $1.0 trillion issuance level is unlikely to be reached in 2023.
Relative Performance: ESG Indices vs. Conventional Indices
Sustainable mutual funds and ETFs recorded an average decline of 3.0% in October, reflecting investor concerns centered on Q3 corporate earnings and projected earnings, interest rates and the state of the economy. Stocks fell for the third consecutive month, with the large cap S&P 500 posting a drop of 2.1%. At the same time, bonds recorded their sixth consecutive monthly decline, giving up almost 1.6% based on the Bloomberg US Aggregate Bond Index total return results. 10-year treasury yields briefly touched 5% mid-month before settling at 4.88% on October 31st.
Against this backdrop, four of six selected equity and bond MSCI ESG Leaders indices either outperformed or matched their conventional counterparts. October’s results displayed a clean split between the relative performance of foreign and domestic indices as the three selected foreign ESG benchmarks outperformed their conventional counterparts while the two domestic ESG indices lagged. At the same time, the Bloomberg MSCI US Aggregate ESG Focus Index matched its conventional counterpart. Over the trailing 12-months, five of the six MSCI ESG Leaders indices outperformed their conventional counterparts.
Sources: Morningstar Direct, Bloomberg, MSCI and Sustainable Research and Analysis.
