Given the continuing focus on ESG among asset managers and distributors, we looked at how ESG funds are performing against their categorical peers since we believe performance will be a key barometer for growth. Through May 2018, ESG funds have been underperforming, especially in the asset classes with the highest number of ESG products. For example, there are 143 U.S. Equity ESG funds, but only 44% managed to outperform their primary benchmarks. In addition, from 2014 through the first quarter of 2018, ESG fund assets grew 8%, from $232.3B to $302.2B. Managers need to understand that given these performance stats, many intermediaries will continue to view ESG as a performance trade-off for a worthy cause. If managers cannot show a different performance story, advisors will likely keep their core portfolio allocations and only make small ESG allocations to appease a client’s socially conscious goals.
Sources: Morningstar, FUSE Research