Appetite for fixed income funds drove the highest inflows of the year into Article 8 funds in the final quarter of 2024, according to the latest SFDR update from Morningstar Sustainalytics.
While it wasn’t a good year for equity funds in Article 8 and Article 9 funds, bond funds dominated flows particularly in the fourth quarter as investors sought the “attractive balance between carry and yield stability”. Article 8 bond funds saw €47bn in flows in Q4, while Article 6 funds netted €25.8bn. Reflecting the ongoing challenges of more targeted sustainability strategies, Article 9 fixed income strategies saw minor outflows of €6200m.
In contrast, Morningstar said assets into Article 8 and 9 equity funds “remained sluggish” with flows of €4.1bn and €6.4bn respectively.
See also: Sustainable fund flows: Challenges, opportunities and the road ahead
“Article 8 funds showed resilience in 2024 by registering increased inflows in line with the rest of the market,” commented Hortense Bioy (pictured), head of sustainable investing research for Morningstar Sustainalytics.
“But this performance was entirely attributable to fixed income funds. Equity funds in Article 8 and Article 9 categories, combined, experienced net redemptions over the full year. In 2024’s bull market, investors simply preferred conventional equity strategies.”
Echoing Morningstar’s Global Sustainable Fund Flows report findings, at least 65 Article 8 and Article 9 funds with ESG-related terms in their names were rebranded in the last quarter of 2024, a notable uptick from 33 three months earlier. The report predicted the number of fund name changes will intensify ahead of the May deadline for ESMA fund naming guidelines.
Bioy noted: “In the months ahead, we expect a complete transformation of the EU ESG fund landscape as the deadline for the ESMA fund naming rules approaches. Overall, we estimate between 30-50% of ESG funds, representing between 1,200 and 2,200 funds, could see name changes, with term removals, additions, and potential mergers anticipated for smaller and underperforming funds.
“Investors will need to monitor any changes to their funds’ name and investment objective to understand the potential impact on their portfolios’ risk-return and sustainability profiles.”
Elsewhere, Morningstar reported combined assets in Article 8 and Article 9 funds reached €6.1trn, accounting for 60% of the total market share and a slight increase from the previous quarter.
Actively managed strategies continued their flow recovery with €36.3bn of new flows in Q4, which Morningstar flagged as their strongest quarterly performance since the fourth quarter of 2021. Passive Article 8 funds also saw a steady growth of inflows reaching €15.7bn.
