London-based TwentyFour Asset Management, a fixed income boutique affiliated with Vontobel, has upgraded one of its funds to Article 9 under the EU’s Sustainable Finance Disclosure Regulation (SFDR).
The Luxembourg SICAV fund – Vontobel Fund – TwentyFour Sustainable Short Term Bond Income – will transition from Article 8 to Article 9 effective from 26 January 2024, aiming to invest in securities of issuers that contribute towards keeping global temperature rises to below 2°C.
The fund seeks to reward companies for sound ESG practices by applying both positive and negative ESG screening to the investment universe.
The move comes in contrast to the wave of downgrades to funds under SFDR that occurred in 2022 and 2023.
Chris Bowie, partner and portfolio manager at TwentyFour (pictured), said: “This marks the first Article 9 classification of a fund by TwentyFour, as we have taken a deliberately conservative approach under the SDFR guidelines. Our fund range has been carefully constructed to provide a true diversity of opportunity to our client base, with each fund analysed according to its specific strategy, rather than imposing a homogenous ‘Article 9 approach’ to fund classifications.
“Our focus has been on continuing to build-out our ESG capabilities and embed them throughout our investment process. We look at ESG risks in the same way we do any other risk to our clients’ investments; but we also recognise that these are some of the biggest risks facing our world today and they will likely have a big impact on long-term returns.
“The overriding priority, however, remains providing the most relevant investment solutions for our clients, and we will continue to focus on further developing relevant and diversifying products for our clients over the long-term.”
Record Article 8 and 9 outflows
Meanwhile, according to the latest SFDR review from Morningstar, the fourth quarter of 2023 saw the largest quarterly outflows from Article 8 funds on record, while Article 9 funds saw their very first outflows amid persistent macroeconomic pressures and waning investor appetite for ESG and sustainable products.
However, assets in Article 8 and Article 9 funds rose by 1.7% over the quarter to a new record of €5.2trn (£4.4trn), while they also together saw their market share climb further to nearly 60% of the EU universe, primarily due to continued reclassification from Article 6 to Article 8 or 9. Morningstar identified 256 funds that altered their SFDR status in the fourth quarter, including 218 that upgraded to Article 8 from Article 6, while only four funds downgraded to Article 8 from Article 9.
“Just short of three years since SFDR came into force, the overall flow picture for Article 8 and Article 9 funds looks pretty bleak. However, unpacking the latest outflows for Article 8 Funds, we learn that passive ESG funds continue to hold up very well and investors still favour funds with commitment to sustainable investments over those with no commitment,” explained Morningstar’s global director of sustainability research, Hortense Bioy.
“Despite the negative flows, assets in Article 8 or 9 funds, excluding money market funds, reached a new record last year, at €5.2trn, which represents 60% of total assets in EU funds.”
