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.

Global Equities: IA Global

Data as at 31st August 2023. Total return with net income re-invested. Source: FE Analytics

The recent market environment has unfortunately not been the most hospitable backdrop for the majority of responsible investment funds. As most responsible investment funds tend to have a larger exposure to stocks and sectors with growth characteristics, such a technology and healthcare, which have suffered as expectations surrounding inflation and interest rates have changed. In addition, responsible investment funds tend to exclude certain areas considered harmful, such as the production of fossil fuels and defence, which have outperformed over recent times due to surging energy prices and geopolitical tensions.

Though responsible investment UK equity funds were under pressure last year, we are beginning to see a reversal of this trend, though relatively modest. While there have been headwinds over the short term, should the prevailing market conditions persist, responsible investment funds should benefit, given their more growth-orientated, longer-term positioning.

	YTD	2022	2021	2020	2019	2018	2017	2016	2015	5 years
Average IA Global Fund	6.9%	-11.2%	17.7%	15.7%	22.6%	-5.3%	15.1%	23.4%	4.5%	38.7%
Average RI Global Fund	3.8%	-13.9%	17.4%	24.8%	26.0%	-5.1%	15.6%	22.7%	3.9%	44.6%

Data as at 31st August 2023. Total return with net income re-invested. Source: FE Analytics

UK Equity: IA UK All Companies

Following a good run for many global equity responsible investment funds over the longer-term, similarly to their UK counterparts, several trends have conspired against returns over 2022. In market characterised by tighter monetary policy, high interest rates and inflation, companies’ global equity responsible investment funds are typically exposed to (technology, healthcare solutions, and smaller sized companies) have been more challenged against this backdrop.

As with UK equity funds, headwinds persist for responsible investment funds, however, we remain focused on the long-term story, whereby responsible investment global equity funds, on average, have outperformed the sector over last five years.

	YTD	2022	2021	2020	2019	2018	2017	2016	2015	5 years
Average IA UK All Companies Fund	2.1%	-9.1%	17.1%	-6.4%	22.7%	-11.0%	14.3%	11.3%	5.9%	9.5%
Average RI UK All Companies Fund	1.4%	-14.7%	15.7%	-1.9%	26.9%	-8.9%	15.7%	7.7%	7.7%	8.1%

Fixed Income: IA Sterling Corporate Bond

Data as at 31st August 2023. Total return with net income re-invested. Source: FE Analytics

	YTD	2022	2021	2020	2019	2018	2017	2016	2015	5 years
Average IA Sterling Corporate Bond Fund	1.3%	-16.4%	-1.9%	7.7%	9.5%	-2.1%	5.0%	9.4%	-0.1%	-3.4%
Average RI Sterling Corporate Bond Fund	1.2%	-16.0%	-1.6%	7.0%	8.8%	-2.1%	6.0%	9.0%	0.6%	-3.8%

The responsible investment market within fixed income is much smaller than equities. As such, the performance of responsible investment sterling corporate bond funds is much more mixed over the long term. With the market remaining focused on rising inflation and interest rates, the more recent and year-to-date performance of both responsible investment sterling corporate bond funds and their traditional counterparts is not surprising. When compared to the UK and global equity markets, however, there is far less disparity between the two over longer time horizons.