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ESG accounted for 90 per cent of fund inflows in July

ESG accounted for 90 per cent of fund inflows in July

ESG funds accounted for 90 per cent of equity fund inflows in July, according to new research.

The funds saw net inflows of £995m, their second best monthly performance, according to global flows network Calastone.

The data showed investors were starting to fine tune their ESG investments, as ESG equity funds with a targeted geographical or sector focus made up a greater share of inflows.

Indeed £1 in every £12 of overall ESG fund inflows being invested in those with a UK focus.

For the year to date, ESG sector funds have seen £764m in inflows - two thirds of all their cumulative inflows since 2015.

The data also showed more than nine tenths of these ESG flows were into active equity funds.

Indeed inflows into passive funds dropped to £39m in July, their second-worst month in more than five-and-a-half years, while inflows into passive funds were £1.08bn.

However, inflows into equity funds overall dropped in July, which Calastone said was due to concerns over global growth "and the high value of stock markets around the world". 

The data showed net inflows to equity funds fell to £1.1bn, which is half the average monthly inflow over the past six months.

Edward Glyn, head of global markets at Calastone, said ESG funds had proven a real “game changer”.

“Investors seem to view them as a class apart – even after two years of dramatic growth, the trend of inflows is still firmly on an upward path, with only relatively minor wobbles when the wider stock market is down,” he said. 

“Most ESG funds are actively managed, so the ESG gold rush is masking what are in fact much more normal trading patterns for ‘traditional’ active equity funds – flows for these funds are still just as driven by sentiment as ever. In the last two years, non-ESG active funds have seen outflows in more than five months in 10.”

Last month, a portfolio manager at Schroders said investors looking to gain exposure to thematic investments should consider an active approach.

Alex Monk, fund manager of the Schroder Global Energy Transition Fund, told FTAdviser there were a number of reasons why an active approach to thematic investing added value.

“The first is that typically, when you look at passive indexes today, they offer either imbalanced or incomplete exposure to a theme,” he said.

“That's not to say that going forward, that can't be rectified. But if you look at the passive indexes that exist today, they tend to be very concentrated around specific sub sectors and specific names within that.

“That’s typically a function of bigger names within the space and the more mature technologies and the more obvious technologies related to a theme.

In June, research from Quilter Investors showed that investors have more confidence in active portfolio management than passives when it comes to achieving their objectives.