In recent months Last Word Research has noticed an increase in demand for ESG funds among our global audience. Not only has more money been moving into these funds, but also on average, their performance has continued to be impressive. In fact, the latest Morningstar data shows that on average ESG funds consistently outperform non-ESG funds, and funds which received a “high” sustainability rating from Morningstar performed better still.
Even with COVID-19 having a significant impact in March 2020, ESG funds quickly bounced back.
However, how can an investor make the most of this opportunity?
While there are several ratings agencies that provide their own ranking, there is no one-stop shop for investors to find the top ESG funds until now. Following the recent success of the launch of the UK’s Responsible Ratings Index, Last Word Research and ESG Clarity US have teamed up to create the Responsible Ratings Index US.
Through combining the scores of various ESG ratings agencies, the Responsible Ratings Index provides investors with a view of which funds consistently receives the top ESG scores across all the ratings agencies. Of these funds, only those which have received a four or five star rating from Morningstar’s Overall Ranking for performance will make it onto our list. These are funds that have consistently performed well over the past three years.
How is the RRI created?
In order to create our Index, Last Word Research has taken the Morningstar Sustainability Ratings, MSCI’s ESG Funds Rating and Refinitiv Lipper Fund ESG scores and assigned them a numerical value of between one and five, with five being the top score. We have then taken the average of these scores to create our Responsible Ratings Index score.
Each month, Last Word Research will rerun the data in order accommodate the ever-expanding list of ESG funds, and highlight those that consistently receive the top scores, as well as those that move up the ranks, and new joiners.
For September, MSCI, Lipper/Refinitiv and Morningstar are the three ESG ratings agencies that have been used to create the RRI. As ESG continues to become ever more important to American investors, we expect to see a sharp increase in the number of ratings agencies that will get involved.
Socially conscious funds
On our index, you will notice a column marked “socially conscious” and a large number of our funds with a “no” next to them. This does not mean they are not a socially conscious or ESG fund.
The Socially Conscious marker is provided by Morningstar, where companies can mark if they think their fund is socially conscious or not. A large number of funds choose not to mark themselves as socially conscious, despite receiving high scores from multiple ratings agencies.
There are a few possible reasons for why this might be the case. One would be that these fund managers see ESG and social consciousness as a thing all investors should be doing as a matter of course, and therefore does not need to be emphasized.
Another possibility, suggested by Morningstar, is that they may just not realize that they can inform Morningstar that they are a socially conscious fund.
Either way, this seems like an unusual choice on the part of the fund manager, to miss out on an PR opportunity such as this.
The aim of this project is to help investors have a one-stop shop for all their ESG investing needs. By providing an aggregate score for ESG funds, as well as a look at their past performance and predicted future performance, investors and advisers now have the opportunity to make an informed decision about future investments.
It is clear that ESG investing is here to stay, and for those who seize the opportunity, there is clearly plenty of possibilities here.
Results
Taking the top spot this month is Green Century MSCI. Not only has it received the top score from the RRI:US, it has also seen plenty of net inflows. While there has been a slight dip in the beginning of 2020 (as is to be expected) overall this fund has not only received a strong ESG score, but also bounced back in recent months.
Morgan Stanley Europe received a top RRI:US score this month; this fund has seen significant net outflows for much of the past two years. In fact, it is only in the past two months that we have seen strong net inflows. In more positive news, there has been a nice uptick in performance since March 2020, so this may be a fund to watch.
Much like the other funds, Hartford Schroders International had a significant dip in performance in March 2020, however even during the midst of a pandemic, there has been significant net inflows moving into this fund, totaling an impressive $237 million between January 2020 and July 2020.
Unlike the other three funds that took the top spots, Columbia Select Global Equity has seen little money moving into this fund. In fact, in June 2020 there was a net outflow of $42 million. Despite this, the overall performance of the fund has been strong. In fact, even in March 2020, when the other three funds all dropped into the negative, Columbia Select remained positive, and bounced back the quickest.
If you would like to discuss this information further please do not hesitate to get in touch at Lottie.mcgurk@lastwordmedia.com.
