The performance of Responsible Investment funds

At Square Mile, we are staunchly long-termist in our investment approach. As such, when we look at and appraise the performance of funds, we do so (as we have here) by looking at how funds have fared over a minimum of five years. We then use shorter term annual numbers to provide a clearer view on performance in terms of consistency. Doing so means that we not only improve our understanding of the short term, but crucially longer-term trends - providing valuable insight into which funds can navigate changing market conditions while staying true to responsible investment principles.

We also believe that it’s vital, when looking at the performance of Responsible Investment funds, to make fair comparisons. It is for that reason that here, we have compared actively managed funds across three popular sectors, namely IA UK All Companies, IA Global, and IA Sterling Corporate Bond.

Global Equities: IA Global

Source: LSEG Lipper. Data as at 31^stOctober 2024. Past performance is not an indicator of future returns.

	YTD	2023	2022	2021	2020	2019	2018	2017	2016	2015	5 Years
Average IA Global	9.95%	12.45%	-11.05%	17.95%	14.84%	22.11%	-5.59%	13.80%	24.45%	4.08%	55.02%
Average RI Global	9.21%	11.83%	-13.33%	18.32%	19.13%	23.99%	-4.73%	14.85%	22.25%	3.80%	50.70%

2024’s global stock markets have so far this year continued to be characterised by volatility, with investors reacting to the constant mix of both positive and negative news around the globe. Despite the geopolitical backdrop, the U.S. has seen a surprising amount of economic resilience; however, a cooling jobs market in the Summer, meant the Federal Reserve finally started its rate-cutting cycle. Additionally, investors in global tech stocks started to show concern over arguably lofty valuations. In Asia, Japan saw a positive rally, followed by a significant downturn, while China’s economy benefited from a substantial stimulus package.

Against this backdrop, Responsible Investment (RI) funds continue to demonstrate their ability to make comparable returns to traditional investments. The historical performance of RI funds vs. IA Global therefore goes to show that investing in sustainable and social solutions doesn’t automatically mean investors will sacrifice financial returns.

UK Equity: IA UK All Companies

Source: LSEG Lipper. Data as at 31^stOctober 2024. Past performance is not an indicator of future returns.

	YTD	2023	2022	2021	2020	2019	2018	2017	2016	2015	5 Years
Average IA UK All Companies	7.12%	7.26%	-9.28%	17.12%	-6.22%	22.50%	-11.18%	14.08%	11.19%	4.90%	22.99%
Average RI UK All Companies	6.82%	6.43%	-18.27%	14.60%	-4.52%	25.60%	-10.56%	12.47%	7.45%	8.74%	12.70%

The performance of the IA UK All Companies sector further demonstrates that allocating capital to RI funds does not have to be at the detriment of returns; as shown in the chart, UK RI funds have performed similarly to regular funds so far in 2024, as they did in 2023.

UK RI funds, therefore, should gain yet more traction as investors look to match their financial goals with investments that generate positive social and environmental change. Moreover, as the SDR framework continues to bed in, investing in UK RI funds will be further supported due to wider adoption of the new regulations, which will lead to improved transparency for the investment style. As a result, investors are likely to place more trust in Responsible Investments, while a growing range of RI funds will simultaneously improve market efficiency.

Fixed Income: IA Sterling Corporate Bond

Source: LSEG Lipper. Data as at 31^stOctober 2024. Past performance is not an indicator of future returns.

	YTD	2023	2022	2021	2020	2019	2018	2017	2016	2015	5 Years
Average IA Sterling Corporate Bond	2.1%	9.2%	-16.4%	-1.9%	7.7%	9.5%	-2.2%	5.1%	9.8%	0.3%	-1.3%
Average RI Sterling Corporate Bond	1.7%	8.7%	-17.9%	-1.7%	7.4%	9.3%	-2.5%	4.7%	9.2%	0.2%	-1.6%

Even though rate-cutting cycles did finally start this year in the Eurozone, the UK and, of course, the U.S., fixed income markets are now tempering their expectations for how quickly cuts will occur in the near future. Changes at the political helm in the UK and the U.S. have meant traders believe rates will stay higher for longer, with Trump’s reelection likely to work as an inflationary pressure too. As can be seen from the charts, bond markets tend to perform better when inflation falls and interest rates are cut.

Just with IA Global and IA UK All Companies, the difference in performance between IA Sterling Corporate Bond funds and RI Sterling Corporate Bond funds has so far been minimal in 2024 - again demonstrating that investors do not have to choose between financial returns or allocating capital to be used for societal good.