Record Number of Sustainable Funds Launched in Q1

Product manufacturers are increasingly catering to investors looking to invest sustainably, but the space is dominated by a few heavyweights.

Abdulai Mohamed, CFA 18 April, 2022 | 2:43AM
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Banff Landscape 

Late last week, we launched our latest quarterly Sustainable Funds Landscape for Canadian Investors, in which we found that a near record number of sustainable products were launched in Canada in the first quarter of 2022. Product manufacturers are increasingly catering to investors looking to invest sustainably. The space is dominated by a handful of heavyweight sustainable fund and exchange-traded fund providers. 

Here are a few highlights from our report:

  • Twenty-eight new Canadian-domiciled sustainable investment products were brought to market in the first quarter of 2022, more than the past two quarters combined. A select few new products, Wealthsimple North American Green Bond ETF, RBC Vision Fossil Fuel Free Emerging Markets Equity, and BMO Brookfield Global Renewables Infrastructure Advisor Series, brought in close to CAD 300 million in assets.

  • Growth in sustainable funds and ETFs was flat compared with the prior two quarters but substantially higher than a year ago. Sustainable assets (excluding funds of funds) stood at CAD 33 billion, illustrating a year-over-year growth rate of 43%. Actively managed strategies are significantly dominant in this space, representing 82% of assets compared with 18% of assets in passively managed mandates.

  • The sustainable investment space is still concentrated around a handful of key dominant providers, such as NEI Investments, RBC, Mackenzie, BMO, IA Clarington, Desjardins, Franklin Templeton, National Bank (Canada), Fidelity, and AGF investments. Together they represent 92% of current market share.

  • Flows into sustainable funds and ETFs (excluding funds of funds) continued their upward momentum. Collectively, net inflows totaled CAD 2.2 billion. Across asset categories, 70% of net inflows went to equity funds and 22% to fixed income. Allocation and alternative funds received the remaining inflows.  

A tumultuous start of the year caught sustainable funds and ETFs off guard. The vast majority underperformed their respective Morningstar Category peers. The first quarter only saw 29% of equity funds outperforming, while 48% of fixed-income and 14% of allocation funds topped their average peer.

In the first quarter, Canadian assets invested in sustainable funds and ETFs saw muted growth compared with the third and fourth quarters of 2021. However, assets have substantially increased from a year ago. According to Morningstar's data, assets grew to CAD 33 billion at the end of the quarter, representing a year-over-year growth rate of 43%. Notably, actively managed assets grew by 45%, and passively managed assets grew by 33%. On the same subject, the distribution of assets invested in sustainable funds and ETFs continued to lean precipitously toward equity strategies at 72%. Sustainable fixed-Income funds held 21% of assets, and the remainder were in allocation and alternatives funds. However, sustainable alternative assets grew over 160% from a year ago, dwarfing the asset growth of allocation (55%), equity (42%), and fixed-income (40%) funds. Note that alternatives funds have a small asset base at roughly 1%

However, the performance of sustainable investment funds and ETFs for the first quarter was conspicuously bleak. Out of the 216 sustainable products that received a peer ranking, only 29% of equity funds outperformed their respective Morningstar Category, while 48% of fixed-income and 14% of allocation funds topped their average peer. The performance of sustainable funds has been volatile. Sustainable funds are increasingly exhibiting performance like their traditional counterparts.

You can find the whole report here.

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About Author

Abdulai Mohamed, CFA  Abdulai Mohamed is a Manager Research Analyst for Morningstar  

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