ESG funds outperform across global, UK and Equity Income sectors in 2020, says Willis Owen

ESG

ESG funds have outperformed their peers across major equity markets in 2020, delivering near double the returns of non-ESG mandates in the IA Global sector, Willis Owen’s inaugural annual ESG review reveals.

Amid the global pandemic which has altered the investment landscape in 2020, both global and domestic-focused ESG mandates outperformed peers in their broad sectors, Willis Owen data shows.

In the global sector, names including Ballie Gifford’s Positive Change and Global Stewardship funds delivered significant outperformance, with the Positive Change fund returning more than five times as much as the average fund in the IA universe.

On average in the global sector, ESG funds delivered a return of 22.3 per cent this year, versus the IA Global sector average of 13.2 per cent.

Global Top 10

Baillie Gifford Positive Change - 76.13 per cent
Baillie Gifford Global Stewardship – 63.15 per cent
Guinness Sustainable Energy – 59.44 per cent
Aegon Global Sustainable Equity – 51.67 per cent
Pictet Clean Energy – 40.76 per cent
Ninety One Global Environment – 36.19 per cent
AB SICAV I Sustainable Global Thematic Portfolio I – 31.94 per cent
Janus Henderson Global Sustainable Equity – 29.4 per cent
Liontrust Sustainable Future Global Growth 2 – 28.7 per cent
Morgan Stanley Global Sustain – 26.56 per cent

Sector: IA Global – 13.22 per cent

Adrian Lowcock, head of personal investing at Willis Owen, says: “2020 was truly the year when ESG funds emerged from the side-lines.

“The sector has shone on a global basis, with the growing number of options open to global ESG equity managers helping these focused strategies to outperform.

“While the market is still growing, we have seen a real shift in terms of both performance and fund flows, and we expect this trend to continue. The number of funds being launched in this space is likely to continue as groups that don’t have a position or strategy covering ESG look to fill the gaps.”

In the UK’s core All Companies and Equity Income sectors it was a similar story. In a tough year for UK mandates which has seen the average strategy lose 9 per cent, ESG funds outperformed, with an average loss of only 5.22 per cent. ESG UK equity income funds also marginally outperformed their non-ESG peers.

UK All Companies – Top 10

Premier Miton Ethical C – 3.87 per cent
Ninety One UK Sustainable Equity – 0.81 per cent
Royal London Sustainable Leaders Trust – 0.45 per cent
Liontrust Sustainable Future UK Growth 2 – -0.05 per cent
ASI UK Responsible Equity – -2.68 per cent
Liontrust UK Ethical 2 – -3.51 per cent
Aegon Ethical Equity – -5.3 per cent
BMO Responsible UK Equity 2 – -7.84 per cent
CFP Castlefield B.E.S.T Sustainable UK Opportunities General – -9.18 per cent
ASI UK Impact Employment Opportunities Equity Retail – -9.67 per cent

“The UK has been a much tougher market for all funds this year, and there remains a lack of options for ESG investors when it comes to the UK equity income sector, but even here ESG mandates rose above their non-ESG peers,” Lowcock says.

Willis Owen’s analysis separated funds by looking at performance over the year and filtering funds with a specific ESG mandate, including Clean Energy, ESG, Ethical, Sustainable, and Responsible funds.   

Lowcock concedes there remains an issue of greenwashing which the industry needs to tackle, but by focusing on clearly labelled mandates, it aims to provide guidance to retail investors struggling to determine which funds are investing wholeheartedly in ESG.

“ESG is a fairly broad label and doesn’t need to mean ethical, for example, but could just mean the fund uses ESG in its process, which many do,” he says. “That debate will rumble on for some time, but the real point is that an ESG bias really helped portfolios deliver stronger performance. This is in part due to the underperformance of some less friendly sectors such as oil and gas, financials and airlines, but the sustainable focus and governance elements certainly help with long-term investment performance, and that is a long-term driver of returns.”