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Do ‘sustainable’ funds give sustainable returns?

FSA takes a look at the performance of “sustainable” equity funds and finds they all underperform over the long-term.

Only 22% of mutual funds with the word “sustainable” in their name outperformed their category average during calendar year 2007. For calendar year 2016, 67% did. While FSA’s analysis is admittedly simplistic, one can venture a conclusion that fund managers adopting sustainable investing practices have been, on average, doing a better job as time passes.

There are 18 equity funds with the word “sustainable” in the name that are authorised for sale to investors in Singapore, based on data from FE. Nine of them are global equity funds, four invest in Europe, three in emerging markets, one in the US and one in Asia ex-Japan. The number grew from ten funds in 2007.

Percentage of ‘sustainable’ mutual funds outperforming their respective category average

Data: FE, fund performance in US dollars



Looking at the calendar year performance, we observe a rising trend in the number of sustainable-themed funds outperforming their category average, as defined by FE.

Vontobel stands out among the ten “sustainable” fund providers. Two of their three funds, the Vontobel Mtx Sustainable Asia Leaders (ex Japan) and the Vontobel Mtx Sustainable Emerging Market Leaders Fund, delivered returns of 92.6% and 59.3% over five years, decisively beating their benchmarks and category averages. The Asia ex-Japan fund was launched in 2008 and the emerging markets one in 2011.

Both Vontobel funds are managed by Thomas Schaffner. Roger Merz, co-manager of the emerging market fund also manages the Vontobel Mtx Sustainable Global Leaders Fund which, while also delivering a 53.7% return over five years, did not beat its benchmarks or the sector average. 

Both managers assumed their roles in the late 2012 and early 2013, with all three funds outperforming their benchmarks and respective sector averages in each calendar year since then, with the exception of 2016.

On the other end of the spectrum, European sustainable funds seem to have a hard time outperforming European equity funds. The Parvest Sustainable Equity Europe Classic Fund underperformed the category in eight out of ten calendar years of its track record and the Pictet European Sustainable Equities Fund underperformed in nine out of 11 calendar years. 

Long-term doubts

Next FSA examined three-, five-, and ten-year cumulative performance versus the funds’ own benchmark and asset class. It appears that sustainable-themed funds over the long-term underperform their benchmarks. 

Ten of the 18 funds had a track record of ten or more years. All of them underperformed their indices by double digits over the trailing ten years.

On shorter scales, the numbers do improve, however. Only 65% underperformed their indices over the trailing five-year period and 76% over the three-year period.

And while 70% underperformed sector averages over ten years, only around 35% did so over the five- and three-year periods.

Part of the Mark Allen Group.