How have Responsible investment funds been performing?
We believe that it is important to compare like with like. Therefore, we have analysed actively managed funds (which are not just focused on one theme) within three of the most popular sectors – namely the IA UK All Companies, IA Global and IA Sterling Corporate Bond sectors.
We have compared responsible investment funds within each sector, looking at discrete annual periods to give a better picture of the consistency of performance, as well as the cumulative five-year period performance against the average sector fund.
Past performance is not a guide to future returns. Data as at 31st March 2024. Source: Refinitiv
UK RI funds are becoming increasingly popular as investors seek to combine their financial objectives with beneficial social and environmental impact. Companies with good environmental, social and governance (ESG) policies may be better positioned to manage the risks and opportunities associated with climate change, resource shortages, and societal concerns. Furthermore, there is a wide range of UK RI funds catering to various investment strategies and preferences. Despite the global market volatility, UK RI funds fared similarly to regular funds in 2023.
In our view, looking forward, the future of UK RI funds is supported by various tailwinds. As new regulations are implemented, these funds will tend to provide greater transparency to customers and may be entering a beneficial stage of maturation.
Past performance is not a guide to future returns. Data as at 31st March 2024. Source: Refinitiv
Last year's global stock market rise was powered by a mix of stronger economies, improved corporate quarterly results, and anticipation of interest rate cuts. More specifically, technology and growth stocks aided the markets' recovery following a difficult 2022. Artificial intelligence and the “Magnificent Seven” stole the show in the United States, while Europe witnessed a more balanced performance across sectors such as consumer staples, healthcare, and financials. Asian stocks performed nicely in Japan but fell short of expectations in China.
Responsible Investment funds have shown their power and potential by achieving comparable returns while investing in sustainable and/or social solutions. Looking at the historical performance of RI funds vs IA Global, it is possible to recognise that “doing good” does not have to come at the expense of returns.
Past performance is not a guide to future returns. Data as at 31st March 2024. Source: Refinitiv
Similar to the other two sectors, IA Sterling Corporate Bond funds and RI Sterling Corporate Bond funds have shown comparable results. Whereas RI bond funds may focus on branded assets with use of proceeds earmarked for environmental or social projects, regular bonds may invest in assets that may not necessarily have ethical, social, or sustainable features.
Given the nature of bond markets, we can see that increasing inflation and interest rates tend to affect the fixed income market but falling inflation and the prospect of interest rate cuts work in the other direction. Such swings are plainly visible over the last years in the displayed chart, while the current year shows mixed signs due to the uncertainty around when the path of interest rates will change.
