The demand for ethical investments have taken a hit this year as the sector has come off the boil. As the oil majors have thrived and mining stocks have risen, environmental, social and governance (ESG) funds unable to buy these ‘bad’ sectors have missed out.
Yet some of these funds have made the best returns over the past decade and might do well again if the current market environment reverts back to the conditions post global financial crisis.
As such, below Trustnet looks at which sustainable funds within the Investment Association universe with an FE fundinfo Crown Rating of five have delivered the highest returns over 10 years. To come up with this shortlist, we used the funds tagged in FE Analytics as having a ethical/sustainable focus.
The list includes two country specialist and emerging market portfolios, two global and three European funds, which, incidentally, all beat their respective sectors in the past year as well.
With a 378% return against a 106% gain for the IA China/Greater China sector, the best performer was Allianz China A-Shares.
Performance of fund over 10yrs against sector and benchmark
Source: FE Analytics
This Luxemburg-domiciled $12bn fund is 90% invested in Asian equities with sector exposures evenly distributed among technology, financial services, industrial, consumer cyclical and consumer defensive; the remaining 10% is held in cash.
Providing both growth and income, it has been the top performer of its sector over 10, five and three years. Although it has lost some positions over the shorter term, it has not fallen below the first quartile of its peer group over the past year.
Second on the list was the Stewart Investors Indian Subcontinent Sustainability fund, with a 321% return besting the IA India/Indian Subcontinent sector, which made 215% over 10 years.
Performance of fund over 10yrs against sector and benchmark
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Source: FE Analytics
Run by Sashi Reddy and FE fundinfo Alpha Manager David Gait, the team are long-term investors with an absolute return mindset. According to Square Mile researchers the managers “should be able to achieve their objectives although they can fall short of these at times given the nature of this region”.
This has been the top fund of its sector before slipping into the second quartile over the very short term (three months and one month).
Moving on to the IA Global sector, Fidelity Sustainable Global Equity Income and Schroder Global Sustainable Growth made some of the highest 10-year returns: 259% and 242% respectively against the average peer’s 158%.
Performance of funds over 10yrs against sector and benchmark
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Source: FE Analytics
Both with a solid track record, the Fidelity fund has fared worse in the very short period, falling into the third quartile over three months, but recuperating to a second-quartile position over one.
At least 70% of the fund’s net assets are invested in issuers deemed to maintain sustainable characteristics, including an 8.5% allocation to Japanese and emerging market equities. Financial companies are among its main holdings.
While Schroder Global Sustainable Growth has a similar geographical focus, it is primarily invested in healthcare, technology and tech-related companies, with its top-10 holdings including Microsoft, Alphabet and Taiwan Semiconductors.
In Europe and the UK, Pictet Quest Europe Sustainable Equities, the Royal London Sustainable Leaders Trust and CFP Castlefield Sustainable UK Smaller Companies made it into the list.
The £2.8bn Royal London fund is co-led by FE fundinfo Alpha Manager Mike Fox, who also acts as head of Sustainable Investment at Royal London Asset Management.
Performance of fund over 10yrs against sector
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Source: FE Analytics
The exclusions applied to the portfolio, combined with the proprietary analysis, has resulted in higher technology weightings versus the index. As such, in comparison to the others on the list, this fund’s performance suffered the most since 2021.
