Readers may not be surprised to hear sustainable funds have had a pretty rough ride over the past few years.
We’d imagine allocators running ESG portfolios read Bestinvest’s latest Spot the Dog data, which is known for identifying duffers in the fund management industry, with some resignation.
The number of dog funds has almost tripled since mid-2023, and they’ve rooted out 49 global funds as duds – the highest of any region.
More than 40 per cent of these funds have a sustainable bent, and in light of this, we sought to ascertain the level of exposure among our allocators to floundering ESG mandates.
The results are pretty bleak.
Seven out of 10 of our DFMs’ most popular global sustainable funds are in the doghouse. To remind readers, a fund is deemed a dog if it has underperformed its benchmark over three consecutive 12-month periods and underperformed by 5 per cent or more over that whole three-year period.
Bestinvest puts this down to their low exposure to oil and gas in a tough environment for renewable energy, while traditional commodities have soared as a result of Russia’s invasion of Ukraine.
The most popular fund of its type in our database escapes this fate: Schroder Global Sustainable Value, held by 13 allocators, is not featured on the dog list.
But, it’s worth noting that this feat was achieved not by virtue of outperformance but by faring slightly less badly than peers. Achieving third-quartile returns after three years sees the Schroder fund narrowly escape what Bestinvest would classify as a dog.
The rest of these offerings are not so lucky. Ninety One Global Environment, our DFMs’ second-favourite sustainable global fund held by 12 investment houses, has returned £99 on £100 over a three-year timeframe.
Janus Henderson Global Sustainable Equity, CT Responsible Global Equity, and Wheb Sustainability comprise the rest of the five most popular funds in the sphere, and all three appear on Bestinvest’s rankings.
EdenTree Responsible & Sustainable Global Equity and Stewart Investors Worldwide Sustainability, which are also relatively popular, found their way onto the dog list.
Only two popular global equity funds in our ESG database - both held by four allocators - escape this fate. One is Sparinvest Ethical Global Value, which has offered third quartile returns and is not a UK authorised fund (though it is recognised by the FCA) so falls outside of Bestinvest's remit.
The other is Baillie Gifford Positive Change which has provided fourth quartile returns over the past three years but its performance seems to have been just about good enough to squeeze out of the doghouse.
In the UK, too, the trend continues. Bestinvest points out that ethical and sustainable funds feature heavily in the domestic dogs list, due to their abstinence from the traditional UK energy and commodities sectors.
The UK stock market is heavily composed of traditional industries such as tobacco, oil and gas, and mining – all three of which must pose a slight headache to sales teams looking to advertise ESG-friendly products.
It follows, then, that three of the five most popular sustainable UK equity funds have been deemed dogs.
These include CT Responsible UK Equity, Ninety One UK Sustainable Equity, and Liontrust Sustainable Future UK Growth.
The most popular UK fund of its type in our database – Royal London Sustainable Leaders – is in the clear. Perhaps more remarkably, Royal London escapes the list altogether, with not a single fund to be named and shamed.