Sustainability is on the minds of investors. And mutual funds or exchange-traded funds (ETFs), called environmental, social, governance (ESG), sustainable, or responsible investments - all with objectives that go beyond financial – are on the rise.
Morningstar Canada’s director of investment research Ian Tam finds, in his latest Sustainable Investing Landscape, that over the 2021 calendar year, assets invested in sustainable funds and exchange-traded funds grew from $17.4 billion to $34.5 billion. The fourth quarter of 2021 alone saw a 10% growth in these assets.
“Most of this growth was the equity asset class, where funds exhibited a year-over-year growth rate in assets of 110%, followed by allocation and fixed-income funds, which grew by 89% and 62%, respectively,” Tam finds. 77% of net inflows in 2021 went to equity funds, 18% to fixed-income funds, and the remainder to allocation funds, reflective of product availability across these broad category groups.
The leaders in the space remained largely unchanged, with NEI Investments, RBC, Mackenzie, BMO, IA Clarington, Desjardins, and AGF Investments currently managing 80% of assets.
Tam finds that there were 73 Canadian-domiciled investment products launched in 2021, compared with 42 products launched a year earlier. New products launched in 2021 collected $3 billion in assets under management, with Fidelity Climate Leadership collecting $543 million
In terms of performance, however, Tam finds that historically on average, sustainable investment products perform much like their traditional counterparts. “Sustainable funds and ETFs finished the year strong in terms of risk-adjusted performance after fees. In the fourth quarter, 57% (117 of 207) of sustainable investment products outperformed their respective Morningstar Category peers. Equity funds showed particular strength, with 61% (72 of 118) of funds outperforming peers,” he says.
You can find the entire report here.
