U.S. sustainable funds face further outflows

U.S. sustainable investment funds saw a third straight quarter of outflows in Q2 2023, according to Morningstar Inc.

Investors withdrew US$635 million from sustainable funds in the quarter, which represented a sharp decline from the US$5 billion pulled out in each of the two previous quarters.

Over the past year, a total of US$11.4 billion has flowed out from these funds.

“Global macroeconomic pressures, including persistent inflation, climbing interest rates, and fears of recession, have driven this retreat,” the report said.

Morningstar said most of the second-quarter outflows — about US$528 million worth — were from actively managed funds, and just over US$100 million flowed out of passive funds.

Despite the outflows, sustainable fund assets increased to more than US$313 billion in Q2 on the strength of “rising equity and bond markets,” the report said.

While assets are still down by 13% from their high mark at the end of 2021, they are up by 15% from Q3 2022, Morningstar reported.

And, it noted that 26 sustainable funds launched in Q2, signalling that “some asset managers continue to see prospects for growth.”

At the same time, the sustainable fund outflows came against the backdrop of US$20 billion in net inflows for mutual funds and ETFs generally in Q2.

“During the second quarter, sustainable funds contracted by a modest 0.21% compared with a tiny 0.08% growth in the overall U.S. funds landscape,” it said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.