ESG Investing  

Top 10 ESG funds named amid record year for inflows

Top 10 ESG funds named amid record year for inflows

Ethical funds have performed nobly in the returns race over the past decade, beating their non-ethical equivalents in the UK and hot on the tail of their global non-ethical counterparts.

Data from AJ Bell shows the average 10-year total return from UK non-ethical funds sat at 80 per cent at the end of September, while investors in ethical funds saw 103 per cent over the same time period.

The bar is set higher in the global sector, but the group’s non-ethical 176 per cent return was closely followed by the ethical funds’ 150 per cent average.

Increasingly investors are opting for funds which fall into the environmental, social and governance category. Unless there are heavy withdrawals from the sector in the next few months, ethical funds are on course to have a record-breaking year in terms of inflows.

Figures from the Investment Association show investors have pumped nearly £4bn into ethical funds in 2020 so far, significantly more than the £3.2bn recorded for the whole of 2019.

Laith Khalaf, financial analyst at AJ Bell, said: “Still less than 3 per cent of all IA retail assets sit in ethical funds, however, which leaves plenty of scope for further growth.

“As more ethical funds launch on the market, and reach the critical three year performance record which is often used as a bare minimum by professional and retail investors, we can expect flows into these funds to continue to blossom.”

The top performers

Royal London’s Sustainable Leaders fund was the top performing UK ethical fund over the past decade, almost tripling investors’ cash, according to AJ Bell.

Of ethical funds with a ten-year record, Premier Ethical and Liontrust Sustainable Future UK Growth also performed well, returning 174 and 152 per cent respectively.

Top 5 UK ethical funds

10 year total return (%)

Royal London Sustainable Leaders195.9
Premier Ethical174.4
Liontrust Sustainable Future UK Growth152.6
Liontrust UK Ethical150.8
BMO Responsible UK Equity111.2

Over the same time period, the FTSE All Share returned 64 per cent while the FTSE 4Good UK saw an average performance of 71 per cent.

Mr Khalaf said: “These numbers show investing ethically is perfectly compatible with getting an exceptional return over the long term. 

“The number of ethical funds on the market has been growing rapidly and that means investors can now afford to get a bit more picky when it comes to choosing a fund with performance pedigree.”

The picture was more nuanced in the global sector. 

The average global ethical fund with a 10-year performance record outperformed the average UK ethical fund, but still underperformed compared to the average non-ethical global fund.

AJ Bell said this was primarily because competing in the global sector was harder due to the strong performance of the US market over the past decade.

There have been some funds which have managed to outpace the racy MSCI World Index, however. The Liontrust Sustainable Future Global Growth fund tops the performance chart with a return of 267 per cent in 10 years.

Top 5 Global ethical funds

10 year total return (%)

Liontrust Sustainable Future Global Growth267.1
Janus Henderson Global Sustainable Equity262
BMO Responsible Global Equity240
Pictet Water212.4
BMO Sustainable Opportunities Global Equity179.7

Mr Khalaf said: “Given the extremely strong absolute performance of ethical funds in the global sector, it’s difficult to say investors should be disappointed but technically as a group they have underperformed.”