Sustainable funds in Canada suffer first quarter of outflows in more than 3 years

Investors pulled $22.4 million from sustainable funds in Canada in the third quarter, marking the first period of net outflows for the category in more than three years, according to a report from Morningstar Inc.

The outflows came amid broader fund redemptions last quarter, with investors pulling $4.1 billion from long-term funds in Q3. In relative terms, Morningstar noted, the decline for sustainable funds was less significant than for conventional funds.

Passive funds drove the outflows from sustainable funds, with investors pulling $208.1 million, while active funds brought in $185.7 million. Active sustainable funds have dominated inflows for the past three years, Morningstar said, and account for $40.4 billion of the $45.8-billion total.

Just as fixed income funds have driven conventional fund flows this year, sustainable bond funds were the only recipients of net new money in the third quarter, collecting $506.2 million.

Performance may have contributed to the quarterly outflows. Morningstar reported that more than four in 10 sustainable funds (44.3%) ranked in the bottom quartile of their respective peer groups in the quarter.

The weaker performance, combined with outflows, reduced sustainable fund assets in the third quarter to $45.8 billion, a 4.3% decline from Q2’s all-time high but still a 13.3% increase from a year ago, Morningstar said. Even with the redemptions last quarter, sustainable funds have gathered more than $1.6 billion so far this year.

Product development for sustainable funds remained healthy, Morningstar said, with 13 new funds introduced last quarter, all of them active funds.

At the end of Q3, there were 272 mutual funds and ETFs that met at least one of the Canadian Investment Funds Standards Committee’s six sustainable investing categories. (Including offering memorandum funds and segregated funds, there are more than 450 sustainable funds in Canada, according to CIFSC’s criteria.)

This article has been updated to state that Q3 marked the first quarter of outflows for sustainable funds in more than three years, rather than two years.

Mark Burgess

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Mark was the managing editor of Advisor.ca from 2017 to 2024.