How Did Canadian Sustainable Funds Do In the Recovery?

We compare sustainable funds with the rest since the market depths of last March

Ian Tam, CFA 21 April, 2021 | 4:28AM
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In celebration of Earth Week, we thought to take a closer look at how sustainable funds and ETFs have kept up in the wake of the coronavirus pandemic. To this end, we look at the trailing after-fee risk adjusted returns of funds and ETFs that Morningstar has deemed as sustainable investments.

 





Exhibit 1: 12M Trailing Total Returns, Canada-Domiciled Sustainable Funds & ETFs

 

1st Quartile

2nd Quartile

3rd Quartile

4th Quartile

Total

Allocation

5

5

8

2

20

Canadian Equity Balanced

2

 

 

 

2

Canadian Fixed Income Balanced

1

 

2

 

3

Canadian Neutral Balanced

1

 

1

 

2

Global Equity Balanced

 

1

3

2

6

Global Fixed Income Balanced

 

1

 

 

1

Global Neutral Balanced

1

2

2

 

5

Tactical Balanced

 

1

 

 

1

Equity

20

13

21

12

66

Canadian Equity

7

2

4

1

14

Canadian Focused Equity

 

 

2

 

2

Canadian Small/Mid Cap Equity

 

 

 

2

2

Emerging Markets Equity

 

 

2

1

3

Global Equity

8

8

7

4

27

Global Small/Mid Cap Equity

2

 

 

 

2

International Equity

 

 

2

3

5

North American Equity

 

 

1

 

1

US Equity

3

3

3

1

10

Fixed Income

4

2

5

2

13

Canadian Fixed Income

3

2

3

2

10

Canadian Short Term Fixed Income

 

1

 

1

Global Corporate Fixed Income

 

 

1

 

1

Global Fixed Income

1

 

 

 

1

Grand Total

29

20

34

16

99

Source: Morningstar Direct, Oldest Share Class Only

The above table breaks out fund performance into broad category groups (allocation, equity, fixed income) and then into more specific Morningstar category peer groups. The columns sum up the number of funds that placed in each quartile over the trailing 12 month period ending March 31, 2021. For example, we saw that of the 66 sustainable equity funds and ETFs that we’ve ranked, 20 of them placed in the top quartile (i.e. these 20 funds beat out three quarters of their respective category peers). Within the equity group, 14 funds manage a Canadian equity mandate. Of these 14 funds, 7 funds placed in the top quartile amongst all Canadian equity managers.

So what’s the story?

First off, experienced readers will recognize that the table reflects a period of time that coincides distinctly with the market recovery (from March 2020 to March 2021). Over this time, the average equity fund return (regardless of whether it is deemed sustainable or not) was a whopping 43 per cent while the average fixed income fund returned about 9 per cent over the same period. The idea here is to observe whether sustainable funds have kept up with their more traditional counterparts. 

What we can observe is that roughly half of Canadian-domiciled sustainable funds and ETFs (49 of 99) were able to outperform their respective peer groups. This happens to hold when we look at broad asset classes as well. 10 of 20 allocation funds outperformed their peers, 33 of 66 equity funds did the same, with a similar result 6 of 13 fixed income funds. Admittedly, this is a very short time period and a small size compared to the 4000+ funds and ETFs available to Canadians. However, from what we can see, these proportions are eerily reminiscent of behavior of the broad category groups meaning that on aggregate, sustainable funds behaved much like traditional funds did.

Not an exciting conclusion by any stretch of the imagination. However, we hope that this observation might help further dispel the myth that sustainable funds underperform traditional funds.

This article does not constitute financial advice. It is always recommended to speak with an investment advisor or financial professional before investing. 

Interested in Sustainable Canadian Funds?

Learn the landscape in our latest report here

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About Author

Ian Tam, CFA  is Director of Investment Research at Morningstar Canada. 

 

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