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Sustainable funds hit $25bn as Australian investors roll in

Grant Kennaway  |  11 Feb 2021Text size  Decrease  Increase  |  
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This is a snippet from Morningstar's quarterly Sustainable Investing Landscape for Australian Fund Investors, Q4 2020. Morningstar Premium subscribers can view the report here.

Assets in Australian sustainable funds topped a record $25 billion in 2020, Morningstar’s quarterly Sustainable Investment Landscape report reveals. 

Retail assets invested in Australasian sustainable investments grew 35 per cent compared with the previous year. Flows were muted in the volatile first half, but record flows in the fourth quarter saw $1.815 billion added to the sector.

Given the volatility of global markets during the pandemic, it seems investors are increasingly committed to sustainable approaches, with over $4 billion of inflows over the past 12 months.

Estimated net flows and aggregate fund size of Australasian sustainable investments (AUD, Mil)

Sustainable Landscape Q4 Flows

Source: Morningstar Direct. Data as of Dec. 31, 2020. Excludes fund of funds.

The Australian sustainable funds market remains quite concentrated, with the top 15 funds accounting for 52 per cent of total assets in the sustainable fund universe. Australian Ethical and Vanguard remain the dominant Australasian providers of sustainable funds, each with a 20 per cent market share.

It has taken Australian Ethical 30 years to become this overnight success. The Australian Ethical Balanced Fund was launched in 1989. In contrast, Vanguard launched the first of its sustainable fund strategies in December 2016, joining Australian Ethical with an equal market-leading share in less than four years.

Noticeable laggards in capturing fund flows to their sustainable strategies include Pendal, Perpetual, and AMP Capital. AMP's corporate travails intuitively explain the firm's net outflows from its sustainable funds' range in recent quarters.

Pendal and Perpetual were early pioneers in the Australian sustainable fund sector but have failed to maintain a contemporary product line-up prior to more recent corporate acquisitions.

Estimated market share of top 10 managers of Australasian sustainable investment funds

Sustainable Landscape Q4 Market Share

Source: Morningstar Direct. Data as of Dec. 31, 2020. Excludes fund of funds

Sixty-three per cent of sustainable funds placed in the top half of their respective Morningstar Category peer groups during the 12 months to 31 December 2020, which suggests investing sustainably does not necessarily mean sacrificing returns.

Compared with Europe and the US, in Australia the sustainable fund market is still relatively small. Through Morningstar's sustainable attribute framework, we have identified 11 additional funds that have been launched in the year to 31 December, bringing the total number of individual sustainable strategies available to Australasian retail investors to a revised 126.

The momentum of sustainable fund launches has soared since 2015. This is the fifth consecutive year of double-digit fund launches.

Record inflows over the past year of $4.058 billion have been split roughly evenly between active ($2.168 billion) and passive ($1.890 billion) strategies.

Australasia-domiciled sustainable fund and ETF launches (by year)

Sustainable Landscape Q4 Products

Source: Morningstar Direct. Data as of 31 December 2021

By and large, Australians have the most choice when investing in funds that utilise ESG incorporation techniques, but there are fewer choices in terms of funds that invest in an impact manner or when it comes to environmental sector funds.

Ninety-five of the 126 funds employ some form of exclusion from investment in controversial areas, with a high number of funds excluding tobacco (93) and controversial weapons (89) companies that derive a significant portion of revenue from nuclear weapons, land mines, cluster munitions, etc.

 

is a director of manager research, Morningstar Australia.

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