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Markets worldwide have been turned upside down. As social distancing has swept across the world, economies have come to a screeching halt. Millions of jobs have been lost and spending on items other than essentials is almost nonexistent. In regards to stock markets, this has led to large losses across the board. Within this turmoil, here is one notable positive point. Under this stress, sustainable funds have outperformed their competitors.
The first-quarter numbers don’t lie. Sustainable equity funds have been ranked consistently in the top quartiles of their Morningstar categories. 70% of sustainable equity fund returns placed in the top half of their categories. When comparing 26 sustainable index funds with their comparable conventional index funds, 24 out of the 26 sustainable funds outperform the other fund. The relative performance of sustainable funds is even greater when looking outside the United States market. When looking at Morningstar’s foreign large-blend category, all 11 sustainable funds outperformed their alternatives this quarter. Other funds returns were about 24% negative while funds aligned with ESG guidelines have 22% negative returns.
There are numerous reasons why sustainable funds have performed better. Sustainable funds are more diverse and aren’t as dependent on energy stocks as competitors. As transportation has halted worldwide, energy stocks have tumbled. Sustainable funds are more rooted in the information technology sector. This sector has done fairly well and was the best-performing sector this past quarter. The main reason for sustainable fund performance is the commitment to ESG ideals. These funds, who hold ethics fundamental to their operations, have proven to be better in times of crisis. This is very telling. Responsible behavior and accountable leadership pay off.
Sustainable investment has skyrocketed in popularity and importance in the last 5 years. This has been great overall but has left many asking about how resilient sustainable funds were. Would they hold up in times of crisis? We now have an answer. In times of crisis, sustainable funds compete with and outperform conventional investment options. Join Physis today to not only make a change but secure your tomorrow!
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