ESG equity funds buck slowing equity inflow trend

Edward Glyn, Head of Global Markets, Calastone.

ESG equity funds in the UK bucked the trend of falling allocations in July, raking in almost 90% of net inflows, marking their second-best month on record, according to the latest Flow Fund Index from global flows network Calastone.

In number terms, ESG funds attracted net inflows of £995m compared to a drop to £1.1 bn for overall equity fund inflows, which is half the average monthly figure over the past six months.

Edward Glyn, head of global markets at Calastone said, “Caution on equity markets has prompted outflows from equity funds for two months in a row.  Weakness in stock markets in July seems to have justified that scepticism and ensured that June’s outflows from equities continued though at a lower level. “

However, he said ESG funds are a real “game changer. Investors seem to view them as a class apart – even after two years of dramatic growth, the trend of inflows is still firmly on an upward path, with only relatively minor wobbles when the wider stock market is down.

Since 2015, inflows to ESG equity funds have totalled £11.6 bn with a significant 99% being pumped in since August 2019. The vast majority had been devoted to global ESG equity funds – in 2020 alone, they accounted for 81% of the total ESG tally. However, this is changing as investors are becoming more sophisticated and increasingly are fine-tuning their purchases.

Year-to-date, global ESG equity funds have garnered only two thirds of new ESG equity capital, while in July, the figure dropped to 52%, the lowest ever reading. Instead, those offerings with more targeted geographical or sector focus are more popular and have begun to take a greater share of new inflows. For example, this time last year ESG UK equity funds had still not offset years of steady outflows pre-2019, but inflows have sharply accelerated, totalling £607m year-to-date. In July, every one pound in 12 was directed into ESG equity funds with a UK focus.

ESG Sector funds, a fairly new category which mainly comprises sustainable energy, water, general environmental, and infrastructure specialists, have been particular winners. Year-to-date they have attracted £764m, two thirds of all their cumulative inflows since 2015. In July, this translated into one pound in every four in this category. In addition, 2021 has also seen record inflows to ESG equity funds focused on Europe, North America, emerging markets, specialist regions and equity income.

©Markets Media Europe 2021

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