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ESG saving grace for active strategies

By Lachlan Maddock
 — 1 minute read

ESG funds are the “undisputed success story” of the last two years for the asset management, according to new research from Calastone. 

ESG funds captured an “astonishing” $84 of every net $100 flowing into equity funds of any kind over the last two years, with net inflows increasing sevenfold between 2019 and 2020 despite overall ESG fund turnover only doubling. 

“ESG strategies have been a significant contributor to the success of active global equity funds. This makes sense because fund managers are not interested in where companies are but how they behave. They accounted for two fifths of the inflows to active global funds in the last two years,” Calastone said. 

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However, Australian investors remain “behind the ESG curve” by about two or three years compared to the UK and Europe, adding only $1 for every $13 that flowed into equity funds of any kind. 

“In Australia, discourse in the financial services industry is more frequently turning to ESG. The topic is still more muted than in the UK and Europe and the home-market bias leaves investors with fewer assets that would meet global ESG standards. Across Asia, the speed at which attitudes are changing depends on the level of market development,” said Ross Fox, Calastone managing director for Australia and New Zealand. 

Calastone also found that passive funds are winning the majority of new capital, “comfortably beating” active funds with inflows of US$10 billion in 2019 compared to active outflows of $US11 billion for the same year. 

“The long bull market has favoured passive funds – savers are quite happy to ride a rising index and take the simple market return. But passive investors are all-in on market bubbles and market crashes alike,” said Edward Glyn, head of global markets at Calastone. 

“Moreover, the rise of mega-caps like Apple and Amazon has increased absolute risk for passive investors, even if a fund continues to mirror the market perfectly. This is a sort of hidden risk.”

 

ESG saving grace for active strategies
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