Each of the last four months has set a record for investment into environmental, social and governance (ESG) equity funds, new analysis has found.
Figures in a report by the fund network Calastone show that £1.2bn flowed into ESG funds between April and July, which is greater than in all the previous five years combined.
ESG funds enjoyed record inflows of £362m last month, bucking the trend of outflows from equity funds overall, and offering some relief to active fund managers.
The report also shows that ESG funds have accounted for one-third of inflows into global funds over the last year, with investors opting for 'growth' rather than 'value' holdings.
“Global funds, where growth stocks make up a larger share of holdings, are benefiting from a flood of inflows,” explained Edward Glyn, head of global markets at Calastone.
“But crucially they are also benefiting from a huge marketing push by the fund management industry in favour of ESG funds, partly in response to very strong investor demand for ESG products and partly because they offer better margins for managers.
“Indeed, because ESG funds tend to be actively managed, they are also the one area of real strength for active equity funds, which are otherwise suffering at the expense of their passive counterparts.”
The report reveals that April to July saw four of the best eight months on record for global fund inflows, with investors committing almost £3.1bn in new capital to the category.
However, despite the bright spot afforded by active ESG funds, passive funds once again did better than their active counterparts.
Active equity funds saw outflows of £638m in July, while passive funds saw inflows of £398m.
Funds focused on UK equities have been the hardest hit, seeing outflows of £377m in July, taking the two-month total outflow to almost £1.1bn.
“Caution on equity markets has prompted outflows from equity funds for two months in a row,” Glyn continued.
“Weakness in stock markets in July seems to have justified that scepticism and ensured that June’s outflows from equities continued, though at a lower level. The dichotomy between growth and value helps explains why this is happening.”
Author: Chris Seekings
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