Almost 60% of Canadian ESG funds outperformed in Q2

Over half of Canadian environmental, social and governance–focused (ESG) funds outperformed their peers in the second quarter, finds a report from Chicago-based Morningstar, Inc.

Fifty-eight of 99 ESG funds placed in the top or second quartile of their category in Q2, mirroring the outperformance of their U.S.-domiciled counterparts. In the first half of the year, 63 of 88 funds (with sufficient history) outperformed.

“This ratio was particularly clear within equity funds, which represent the majority of sustainable investments,” stated the Morningstar report.

As of June 30, 2020, assets invested in ESG funds hit $8.8 billion (excluding investments in fund of funds), up 13% from the prior year’s end.

Q2 estimated net flows were positive at $135 million — demonstrating “very much muted enthusiasm when compared with the striking US$750 million of inflows observed in the first quarter,” Morningstar stated in a companion global report.

Put into context, that enthusiasm still indicates healthy interest, Morningstar observed.

“Given the volatility of global markets during the coronavirus pandemic and observed net outflows in Canada-domiciled allocation funds on a year-to-date basis, it seems that investors continue to demand sustainable investment approaches in a time when broad-sweeping market enthusiasm does not exist,” the global report said.

Global ESG assets hit US$1.06 trillion as of June 30, up 23% from the previous quarter. Inflows into global funds were up 72% in the second quarter of 2020 to US$71.1 billion.

The total number of ESG funds now sits above 3,400, thanks to 125 products that launched in Q2.

In Canada, four sustainable investments launched in Q2, bringing the year-to-date total to 15 new products and the overall country total to 114. This compares to 23 U.S. launches in the first half of 2020 — a market 10 times the size by assets.

“The momentum of sustainable fund launches continues to gain traction,” the Canadian report stated. “Given that there were 19 sustainable funds launched in 2019, it would not be surprising to see the number of fund launches to surpass that total in the remaining six months of 2020.”

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.