ESG managed funds see surging inflows: Calastone

Investors poured $1.6 billion into ESG managed funds, and had their largest-ever share of equity inflows during the third quarter, according to data from Calastone.

Calastone's latest Fund Flow Index (FFI) measures trading flows for managed funds, and Calastone reports that more than 95% of Australian managed fund flows pass across the Calastone network each month.

In total, Australians committed $6.3 billion of new capital to equity, with $1 in every $4 of net inflows to equity funds was committed to those with an ESG focus. The total of $1.6bn was almost double the combined inflow during every quarter since the beginning of 2019 when FFI was launched.

"We are particularly interested in the big inflow to ESG funds," said Calastone head of Australia and New Zealand Ross Fox. "Australia has lagged a long way behind its global peers in this area over the last two years, but this may be the beginning of the catch up. In the UK, almost $6 in every $10 invested in equity funds in the last two years has been committed to ESG funds, compared to just $1.30 in Australia."

The third quarter of 2021 marked "a step change," Fox noted.

"Experience overseas suggests the acceleration has a long way to run," he said. "ESG funds tend to be global in nature, so sustained growth in ESG funds may also rebalance flows towards international equities."

The inflows to ESG funds also boosted the actively managed segment, which took in $8.40 in every $10 of equity inflows in the third quarter, compared to the longer run average of $7.40, Calastone noted.

Inflows to managed funds waned through the quarter, which Calastone attributed to extended COVID-19 lockdowns and falls in the Australian stock market.

"We expected solid inflows in the third quarter, but we have been surprised by the enormous volume of new capital flooding into funds, particularly given a troubling news agenda," Fox said. "The Australian economy almost certainly shrank in the third quarter as protracted lockdowns in NSW and Victoria curtailed activity, and the wider global economic recovery decelerated too. Stock markets around the globe have faltered on concerns over rising inflation and higher bond yields, energy supply constraints and falling industrial production in China."

Meanwhile, data from Rainmaker Information found that wholesale ESG managed funds delivered a sector median return of 29% for the twelve months to the end of August.

ESG managed funds' performance continued in line with other sectors' strong performance, Rainmaker Information noted.

"[M]ost managed funds sectors are delivering stunningly high returns of 25% or more: Australian equities small caps, international equities, property, ESG, Australian equities, emerging markets and the growth and balanced multi-assets," Rainmaker said.

Australian equities small cap funds showed the highest median performance over the 12 months to August 2021, with 36.3% percent, followed by international equities large cap at 31.5%, property funds at 31.0% and ESG funds at 29.1%

Read more: CalastoneRainmaker InformationRoss Fox