Daily Management Review

Pioneers Of Sustainable Funds Pressurized By Advent Of Large Funds Into The Sector


Those fund managers who are considered to be pioneers of specialization in the area of investment in green stocks are apparently missing out on benefiting from the gains being made by such stocks after the sector is slowly getting onto the mainstream and because of rising interest in the sector by large firms.
According to fund tracker Morningstar Inc, such funds which are termed as sustainable funds, which comprise of shares of companies selected on the basis of environmental, social or governance (ESG) criteria, are set to see investments of more than $16 billion in net new deposits this year. That number is three times more than last year’s figure of a record $5.5 billion.
However, the top rated asset managers such as BlackRock Inc and Vanguard Group, which were late entrants to the sector, are the ones top which these new investments have primarily gone to. With investments worth $3.75 billion for the nine months ended September 30, BlackRock’s iShares ETF line had the most inflow while with $2 billion of new money, Vanguard was placed in third position in this regards.
Morningstar analysis also found that this year, there was net customer withdrawals from the mutual funds of several well-known socially responsible investment firms that had initiated such investment management trends as early as in 1971. Such asset managers included the likes of Parnassus Investments and Pax World Funds. New outflows were also seen in the account of Boston Common Asset Management in October, leaving only about 10 per cent of their total assets to such stocks under its management.
According to analysts, structural issues are the main cause of this trend. The scale to handle big institutional deposits is available with the top asset management funds – which are often seen through their low-cost passive funds that track indexes and hence do not need active stock-picking.
“We’re not getting those same kinds of flows and yes, that’s a little frustrating,” said Pax World Senior Vice President Julie Gorte. She said this while speaking at a sustainable-investing conference in Colorado last week, The SRI Conference. A record number of 900 participants were seen in that conference. Out of the $21 trillion US mutual fund market, only a small portion is accounted for by sustainable investing. However in recent times, it is gaining popularity especially with young investors who markedly have a greater concern for climate change and various other social issues.
With an effort to differentiate themselves from the top rated asset management funds that track indices, these firms are claiming that they are much more equipped as activities and have the capacity to better push for stricter corporate policies on climate change and other social issues compared to the top asset management companies. This is so because the larger asset management companies only offer index shopping for investors and are not interested in filing shareholder resolutions. Such large funds also rarely single out companies or pull them up because of flouting of social and environmental norms. Additionally, such funds also have large sticks of oil and gas companies in their portfolios.