IInvestors are returning to socially responsible or sustainable exchange-traded fund strategies in the United States after capital outflows in May ended a three-year history of consecutive monthly inflows.
According to Morningstar data, sustainable mutual funds and ETFs, such as those that follow environmental, social and governance principles, generated a “modest” $528 million in net new inflows in June after suffering setbacks. outflows of $3.2 billion in the previous month, Reuters reported.
“Investors may have turned to ESG and renewables, thinking the worst of the recession was already priced in,” Alyssa Stankiewicz, associate director of sustainability research at Morningstar, told Reuters.
ESG investing is often referred to as sustainable investing, responsible investing, impact investing, or socially responsible investing. Companies are often selected based on ESG criteria across a wide range of characteristics such as environmental risks, stakeholder relationships and accounting methodologies, among others.
The ESG theme was tested in 2022 after the start of a bear market, with growing concerns about rising interest rates and the potential for an economic recession, as well as the general underperformance of sustainable fund strategies Americans. Positive inflows in June could not reverse the continued slowdown in investment momentum in sustainable funds in the first half of the year.
For the first six months of 2022, sustainable funds still attracted $9.0 billion in net inflows, well below the $39.4 billion the investment category brought in over the same period in 2021, according to data from Morningstar.
Most sustainable funds cover stock markets, but screen holdings based on socially responsible indicators. As a result, these sustainable equity or ESG funds have also seen inconsistent flows this year amid market volatility in 2022.
By comparison, U.S. equity funds attracted $14.8 billion in net inflows in June, their fourth month of inflows this year, according to Morningstar. Investors also withdrew $61 billion from long-term U.S. mutual funds and ETFs last month, marking their third consecutive month of outflows.
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