Global and UK funds have underperformed their sectors in the past year, according to data from AJ Bell and Morningstar.
ESG global funds in the IA sector posted a 6.6 per cent return in the year to April 5, compared with non-ESG funds returning 8.7 per cent.
The performance of UK ESG funds was worse relative to their benchmark, with the funds posting a 2.2 per cent return for the period, compared with a 5.9 per cent return from non-ESG funds.
Total return as of April 5 2022
1 year | 3 year | 5 year | |
IA Global funds | |||
ESG | 6.6% | 43.4% | 66.4% |
Non ESG | 8.7% | 40.0% | 60.6% |
IA UK All Companies funds | |||
ESG | 2.2% | 14.8% | 25.3% |
Non ESG | 5.9% | 15.3% | 25.9% |
Sources: AJ Bell, Morningstar
Laith Khalaf, head of investment analysis at AJ Bell, said the funds have suffered as growth stocks, in which they are heavily invested, have floundered, and oil and gas companies have profited from rising energy prices.
However, that will not stop money flowing into these vehicles, he added.
“There is genuine consumer demand for these products, and the investment industry has sunk a lot of marketing dollars into launching new funds and rebranding existing ones which now carry the ESG tag.
“On top of which, longer term performance of ESG funds compares favourably to more traditional offerings, especially in the global fund sector.”
Global ESG funds are still outperforming their sector on a three and five-year basis, though UK ESG funds have underperformed their sector by less than a percentage point in the five years to April 5.
Khalaf added that when breaking down the most popularly held shares in ESG funds, global funds include a number of tech companies.
10 most widely held shares in global ESG funds
Microsoft Corp | Technology |
Alphabet Inc Class A | Communication Services |
Thermo Fisher Scientific Inc | Healthcare |
Schneider Electric SE | Industrials |
Apple Inc | Technology |
Mastercard Inc Class A | Financial Services |
Amazon.com Inc | Consumer Cyclical |
Novo Nordisk A/S Class B | Healthcare |
ASML Holding NV | Technology |
Taiwan Semiconductor Manufacturing Co Ltd | Technology |
Sources: AJ Bell, Morningstar
“What’s most notable about the most popular holdings in UK ESG funds is the number of financial services firms in the top 10,” he said.
This sector tends to score well on ESG metrics, as it is not a heavy industry that needs to consume lots of carbon to conduct its daily activities, he said.
10 most widely held shares in UK ESG funds
AstraZeneca PLC | Healthcare |
Unilever PLC | Consumer Defensive |
RELX PLC | Communication Services |
GlaxoSmithKline PLC | Healthcare |
Prudential PLC | Financial Services |
Legal & General Group PLC | Financial Services |
Ashtead Group PLC | Industrials |
London Stock Exchange Group PLC | Financial Services |
SSE PLC | Utilities |
Lloyds Banking Group PLC | Financial Services |
Sources: AJ Bell, Morningstar
Khalaf added: “However, the inclusion of Lloyds might raise an eyebrow or two, seeing as the bank is still mopping up after past misdemeanours, and had to set aside £1.3bn in the last financial year for customer remediation.
“Pharma stocks are also a bit of a shoo-in for UK ESG funds; their core business results in better health outcomes for society at large.”
sally.hickey@ft.com
