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Asia’s ESG fund flow is an anomaly

Developed Asia’s socially-responsible funds had investment outflows over time compared to inflows for other regions, Morningstar has found.

Funds that designate themselves as socially responsible and belonging to developed Asia had outflows at a pace of negative 0.82% on average compared to funds that had no such designation.

That contrasts with inflows of socially-responsible funds globally (+0.40%) and in the US (+0.65%).

Funds in cross-border regions (UCITS funds domiciled in Luxembourg and Ireland and distributed in most global regions) had a positive inflow of 0.68%.

“We do not have any strong story to tell for why this difference [between Asia and other regions] exists, though these differences do seem to be ingrained and persistent,” the research firm said in its recent report on factors that drive investment flows.

The figures measure the percent of more inflows per month, on average, than funds that do not self-identify as socially-responsible products. The time frame for all of the report’s analysis was 2008-2014 for non-US-domiciled funds and 2003-2014 for US-domiciled funds, according to Morningstar.

Outside of Asia, however, the data shows that socially-responsible funds are clearly preferred over their more conventional counterparts, the firm said.

“In aggregate and on average, when faced with similar options, investors would rather invest with funds that consider the social and environmental consequences of their investments,” the report said.

Manager tenure matters

Another finding in the report is the strong link between a managers’ tenure running a specific fund (separate from experience gained at other funds) and the positive investment flows into the fund.

The longer a manager runs a specific fund, the higher the potential inflows, the firm said. Outside of the US, for example, investors rewarded long-tenured managers with inflows at a rate of 0.48% per month.

The loss of a long-tenured manager has significantly negative consequences for flows into the fund.

“Consider a scenario where a fund manager with 15 years of tenure retires and is replaced by new manager. Our results indicate that the typical result will be a reduction in flows per month of 1.5% or more for the typical equity fund globally.”



Part of the Mark Allen Group.