There was significant jump interest in sustainable investment strategies during May, analysis by Trustnet suggests, as environmental, social, and governance (ESG) continued to be one of the more resilient trends of the coronavirus crisis. 
The coronavirus pandemic and the mass lockdowns designed to slow its spread brought the global economy to a virtual standstill and prompted a heavy sell-off in financial markets.
Although few assets have been immune from the coronavirus crisis, ESG is one area that has held up relatively well. As the chart below shows, the MSCI World SRI index, which is a benchmark of companies with strong sustainability profiles, has outperformed the wider MSCI World over 2020.
Performance of indices over 2020
Source: FE Analytics
The research that FE Analytics users carried out in May shows that this outperformance has been sparking their interest in sustainable investment funds, with more attention being paid to the likes of Baillie Gifford Positive Change, Royal London Sustainable Leaders Trust and Rathbone Ethical Bond last month.
In this regular series, Trustnet looks the underlying research activity of the independent financial advisers, wealth managers and other professional investors that use FE Analytics to identify any fund research trends.
To do this, we examine the change in the share of research that each fund has received over the past month compared with a ‘baseline’ from the previous 12 months.
The Investment Association funds that saw the largest uptick in their share of research activity can be seen in the table below and it is clear how many of them have a sustainable or ESG approach just from their names.
Source: FE Analytics Market Intel Tool
The strategy with the largest increase in its research share is Baillie Gifford Positive Change, which is managed by a team of five.
The £517m fund invest in companies that can deliver positive social change in one of four areas: social inclusion and education, environment and resource needs, healthcare and quality of life, and base of the pyramid, or addressing the needs of the world's poorest populations.
In a recent update, the fund’s managers highlighted the long-term nature of the fund and expressed optimism that attractive investment opportunities can still be found.
“Our research effort remains diverse, and our zeal to find great companies that can improve the status quo is stronger than ever,” the team said. “In recent weeks our team has continued work on sustainable agriculture, plastics recycling and waste management companies, and medical equipment companies. Our pipeline of ideas remains rich.”
Over 2020 to 28 May, Baillie Gifford Positive Change made a total return of 23.97 per cent, making it the third best performer of the IA Global sector and highlighting the resilience of ESG in the coronavirus crisis. It’s also the sector’s highest returner over three years.
Strong performance from an ESG portfolio is not limited to this fund, however.
Mike Fox’s Royal London Sustainable Leaders Trust had the third highest increase in research activity last month and it’s 5.33 per cent loss this year is the IA UK All Companies sector’s third-best result. The fund is also top-decile over three, five and 10 years.
Liontrust Sustainable Future Global Growth and Fundsmith Sustainable Equity have also beaten their average peer over 2020 so far. Sitting just outside of the above table, we have the likes of Baillie Gifford Responsible Global Equity Income, Rathbone Global Sustainability and VT Gravis Clean Energy Income that are holding up in 2020 and are being researched more heavily.
Some believe the recent outperformance of ESG investing is more than a short-term trend. Nigel Green, chief executive of deVere Group, recently argued that ESG will be one of the “investment megatrends of the decade” and is potentially worth trillions of dollars.
“These unusual times have fostered a growing collective awareness and sense of mutual responsibility. It’s been brought into sharp focus that today’s Covid-19 crisis could be overshadowed by tomorrow’s climate crisis,” he said.
“It has demonstrated the importance of having sustainable and diverse supply chains. It has also underscored that companies with strong corporate governance and good business practice are best-positioned for the future. This has been evidenced by those investments with robust ESG credentials continuing to outperform throughout the recent bouts of stock market volatility.”
Source: FE Analytics Market Intel Tool
When it comes to the funds that witnessed the biggest decreases in their research last month, the list is topped by Invesco High Income.
Formerly regarded as one of the best funds in the industry, it has suffered an extended bout of underperformance and been hit by heavy outflows; a similar situation has played out at its Invesco Income sibling.
Last month saw Invesco head of UK equities Mark Barnett – who took over the funds after the departure of Neil Woodford – leave the asset management house.
James Goldstone and Ciaran Mallon will take over the Invesco Income and Invesco High Income funds, although Trustnet recently took a look at the options for those seeking alternatives to the Invesco UK equity income range.