This summer, FE Investments published the second of its biannual crown ratings, which track the performance of investment funds. Eligible funds (funds must have had a three-year period of performance) are given a ‘crown score’, with the top 10% being awarded the highest five-crown rating.
Once again, the latest rebalance makes for some positive reading for sustainable funds, which were among the best performers. Among the 17 funds gaining the highest rating, three sustainable funds are worth noting. These are BNY Mellon’s Sustainable Global Equity, Jupiter’s Global Sustainable Equities and Montanaro’s Better World funds, which gained the accolade at the first time of asking.
The strong performance of sustainably focused funds has largely come about from a combination of favourable market conditions and growing interest in ESG investing from both investors, who are looking beyond returns and wanting to know where their money is going, and institutions and fund groups who are looking to diversify their propositions.
The technology sector, where a lot of sustainable funds are concentrated, continues to perform well too, as many economies are adopting a hybrid home/office working approach as they emerge from the Covid-19 pandemic.
Additionally, as ESG investing has taken off, many sustainable funds are now coming into maturity, having been launched three or more years ago and are now eligible for a crown rating. That so many have been rated so highly and so soon, is testament to the strength of their proposition and their ability to capitalise on current market conditions. These three funds have been no exception, as the chart below shows.
Over the course of the pandemic from February last year, all three have broadly tracked their IA Global sector benchmark, which itself was a strong performer, with LF Montanaro’s Better World fund generating the highest returns. You will note that despite dipping throughout March, April and May, all had generated positive returns just several months after the market collapse.
Looking forward however, we are already seeing something of a rotational shift within the markets, which was also reflected within the latest crowns rebalance. And, as the economy reopens, we can expect to see these shifts become more apparent. Those equity funds which were riding the crest of the technology boom seen during lockdown will increasingly find it hard to replicate their outstanding performances over the past 18 months.
A longer version of this article was originally published in ESG Clarity‘s sister title Portfolio Adviser.