This shows that higher returns can be achieved without compromising on environmental, social and governance concerns.
The Best Performing Sustainable Funds over Five Years:
• L&G Global Technology Index
• SVS Sanlam North American Equity Fund
• Axiom Concentrated Global Growth Equity Fund
The ESG Screen
We screened the funds with a Morningstar Sustainability Rating and narrowed those down to those with 4 and 5 Globes, which means they are rated as Above Average or High on ESG issues. These funds must also have a Morningstar Medalist Rating of Bronze and above, so that will capture our highest-rated funds of Bronze, Silver and Gold. Looking at funds for sale in the UK brings up 248 funds (one less than last year). That drops dramatically when we look at Silver and Gold-rated funds and (116), even more if we only screen for funds with 5 Globes. There are only 11 funds with the highest Sustainability and Medalist Ratings. Last year there were 14.
On the return side, we have included figures for year-to-date return and five-year return (annualised). Ideally we’d look at 10-year return but in many cases that’s not feasible – many of the funds with high sustainability rating are relatively new – so five years is the next best thing.
There are 10 funds in the list, but a total of 21 funds have double-digit five-year returns. Last year, only six funds fitting the search criteria had a 5-year average return of over 10%. Four of these have Gold ratings: L&G Global Technology Index and Stewart Investors Indian Subcontinent Sustainability, which are enjoying their third year topping this list, as well as FSSA Indian Subcontinent All-Cap and Aviva Investors Global Equity Income (the latter upgraded from Silver to Gold in the past year), featured for the second time in a row.
Moreover, nine out of the 10 featured funds have double-digit returns for the year too and that’s function of tech and Indian stocks continuing to outperform global benchmarks. However, while some of that uplift can be considered in the context of recent market rallies, other factors will be at work; so we suggest checking the fund factsheets for performance, what these funds invest in, where they invest.
Looking at the first table, investors may not consider either tech or emerging markets funds in the sustainability universe but many different products can meet the criteria.
We’ve created two tables, one showing the funds that have the highest five-year total annualised return, and the other table focuses on Gold-rated funds only. There are a total of 41 Gold funds with 4 or 5 Globes, 31 of which are at least five years old.
Only one fund repeats in both lists, and that’s Stewart Investors’ India fund. This is also the only fund with double-digit performance both in the short and medium term, so as an investor, it could be worth looking what sustainability metric level is right for you. Beyond this, the six funds belong to a diverse range of categories – allocation, UK equities and Asian equities.
Morningstar ratings never stand still so this year we are able to incorporate even more strict metrics in the fund selection process. Our globe rating system remains a key pillar of scrutiny of sustainable funds. But we’ve recently added “Sustainability Themed Investments”, as this article explains.
These strategies explicitly target exposure to one or more sustainability themes, and we have categorised these as Climate Action, Healthy Ecosystems, Basic Needs, Resource Security and Human Development.
