Challenging market conditions weigh on sentiment and subdue sustainable fund inflows
Current challenging market conditions has made investors think carefully about allocations to sustainable funds according to a new report.
Softer investor sentiment has led to a significant pullback from global sustainable funds with US$18 billion of net new money invested in the second quarter of 2023 compared to more than $31 billion in the previous three months.
Morningstar data shows that inflation, interest rates, and recession risk, have impacted the sustainable funds market the most in Japan (net flows of -$1.9 billion), Australia/New Zealand (-1.7 billion) and the United States (-$0.6 billion).
Canadian slowdown
Canadian investors have been more likely to stay with their sustainable investment goals with net inflows of US$207 million in the second quarter, however this is down sharply from the $963 million of the first quarter.
The net inflows were attributed to active strategies as passive registered small outflows. However, Canadian funds’ organic growth slowed to just 0.6% from 3.2% in the first quarter.
Canada’s sustainable fixed-income funds attracted $270 million in the quarter while equity funds saw outflows. NBI products saw the largest share of new money, a total $302 million for its NBI Sustainable Canadian Bond ETF (NSCB).
Total assets invested in Canadian sustainable funds stood at a record $33.7 billion at the end of June, up 4% from the previous quarter. The previous record of $33.2 billion was set in 2022's first quarter. Assets in actively managed sustainable funds increased by 4.2% over the quarter, with passive strategies gaining 3.2%.
Europe leads but shrinks
Europe is well ahead with net inflows of $20 billion, although this too is a significantly lower figure than the first quarter’s $34 billion.
Global sustainable funds saw their quarterly organic growth rate - calculated as net flows relative
to total assets at the start of a period - decline to 0.7%, from the restated 1.2% in the previous quarter.
However, the sustainable funds market has fared better than the overall global fund universe which recorded outflows of over $37 billion in the second quarter. The first quarter saw inflows of $77 billion.
Gains for assets
Global sustainable fund assets posted strong gains in the second quarter, taking the total back towards their historic high.
Total assets were near $2.8 trillion by the end of June 2023, closer to their $3 trillion record at the end of 2021.
An estimated 106 new sustainable funds hit the shelves globally in the second quarter, continuing the slower product launch trend seen since the end of 2022.
