Advisors are being forced to re-examine a long-held belief about an investment type, with new data pointing to just how successful it is.
Morgan Stanley released its Sustainable Reality report earlier this week that puts to rest any preconceived notions advisors and investors might have about sustainable investing.
The returns are competitive… and then some.
Not only did Morgan Stanley’s study of 10,228 mutual funds and 2,874 separately managed accounts over the last seven years find that the median return of sustainable equity mutual funds met or exceeded traditional mutual funds 64 percent of the time, but did so with equal or lower volatility about two-thirds of the time.
“We believe sustainable investing will be a key in the mobilization of private capital towards addressing global challenges, but the growth and development of this space remains hampered by a lingering perception that sustainable investments require a financial trade-off,” Audrey Choi, CEO of the Morgan Stanley Institute for Sustainable Investing.
“Our review addresses the investment performance concern head-on, and the findings are very positive.”
How positive?
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The MSCI KLD 400 Social Index between July 1990 and December 2014 delivered an annualized total return of 10.14 percent, 45 basis points higher than the S&P 500. On a cumulative basis the MSCI KLD Social Index beat the S&P 500 by 102.4 percent while doing so two-thirds of the time with equal or lower volatility.
The report’s findings make it crystal clear that recommending mutual funds to your clients whose company holdings meet high environmental, social and governance standards is not only good for their conscience, it’s good for their pocketbook as well.
The report concludes with the following:
“Ultimately, our comparison indicates that investing to create a positive impact does not necessarily require making a tradeoff in investment performance; on the contrary, sustainable investments
often exhibit favorable return and risk characteristics compared to their traditional peers. We expect that, over time, the fundamental drivers of these performance differences will only grow in importance to investors, both as a way to address important global challenges and to improve investment performance.”
So, the next time your client says they want to do some good with their money, by all means let them.
