Investors are returning to U.S. socially responsible or sustainable exchange traded fund strategies after outflows in May ended a three-year track record of consecutive monthly inflows.
According to Morningstar data, sustainable mutual funds and ETFs, such as those that track environmental, social, and governance principles, brought in a “modest” $528 million in net new inflows over June after suffering $3.2 billion in outflows over the month prior, Reuters reported.
“Investors may have turned back to ESG and renewable energy, thinking that the worst of the downturn was already priced in,” Alyssa Stankiewicz, Morningstar’s associate director of sustainability research, told Reuters.
ESG investing is often referred to as sustainable investing, responsible investing, impact investing, or socially responsible investing. Companies are often screened based on ESG criteria across a broad range of characteristics like environmental risks, relationships with stakeholders, and accounting methodologies, among others.
The ESG theme has been tested in 2022 after the onset of a bear market, with growing concerns over rising interest rates and the potential of an economic recession, along with the broad underperformance of U.S. sustainable fund strategies. The positive inflows over June could not reverse the ongoing slowdown in momentum for sustainable fund investments for the first half of the year.
For the first six months of 2022, sustainable funds still attracted $9.0 billion in net inflows, or well below the $39.4 billion the investment category brought in during the same period in 2021, according to Morningstar data.
Most sustainable funds cover the equity markets but screen holdings based on socially responsible indicators. Consequently, these sustainable or ESG equity funds also experienced inconsistent flows this year amid a bout of stock market volatility in 2022.
In comparison, U.S. equity funds attracted $14.8 billion in net inflows over June, their fourth month of inflows this year, according to Morningstar. Investors also yanked $61 billion from U.S. long-term mutual funds and ETFs last month, which marked their third consecutive month of outflows.
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