ESG flows paint grim picture for active managers

The challenges facing active managers have been underscored by the latest Morningstar analysis around global sustainable fund flows revealing that active strategies accounted for all the outflows from the sector over the past three months.

The analysis, contained in the Morningstar Sustainalytics Global Sustainable Fund Flows report for the second quarter said that while active strategies suffered, passive products garnered nearly US$ 5 billion of net new money.

In an Australia and New Zealand context, it found that sustainable funds suffered outflows of nearly US$800 million after registering small inflows of US$27 million in the previous quarter.

What is more, the analysis said the size of the Australasian sustainable funds market is estimated at US$30 billion as at 30 June, which is US$300 million lower than assets at the end of March.

It said fixed income strategies continued to gather money, with US$230 million in net inflows, but equity funds and allocation funds experienced withdrawals of US$670 million and US$400 million, respectively.

In terms of fund manager market share, it said Dimensional (DFA) has the highest market share, followed by Betashares and Vanguard.

Attitudes to ESG investment reflected political dynamics, with European ESG funds having gathered more than US$20 billion so far this year, while US investors exhibited far more caution with consequent continuing outflows.

Morningstar not that In the first six months of the year, approximately 170 new sustainable funds came to market, globally, compared with 325 over the same period last year.

It said this cooldown reflects a normalization of the sustainable product development activity after three years of high growth, during which almost every asset management firm hastened to build their core sustainable fund ranges to meet the growing demand.

“Managers are now more selective and tactical in their approach to product launches. Many are also waiting for the finalization and implementation of European regulations, such as the UK’s Sustainability Disclosure Requirements and the EU’s SFDR, as these will determine the requirements for new sustainable strategies.”