Sustainable fund outflows aren’t fazing advisors

investmentnews.com:

Investors continued to pull money out of sustainability-themed funds during the second quarter amid a political backlash against ESG — but that trend is unlikely to sway advisors who are true believers in the cause.

Between April and June, a total of $635 million poured out of U.S. sustainable mutual funds and ETFs, representing the third consecutive quarter of net outflows, according to data released this week by Morningstar. The recent figure is much lower than the redemptions seen during the first quarter of 2023 and the fourth quarter of 2022 — both of which were more than $5 billion. But it nonetheless contrasts with positive sales for the full roster of U.S. funds, which pulled in $20 billion in the second quarter.

The results come as Republican representatives in Congress are holding a series of hearings and bill markups this month focused on ESG. But they also come at a time when the performance for sustainable funds has turned around.

Although ESG-themed products were at a performance disadvantage in 2022, due to their lower weightings in the energy sector, they have been buoyed this year in part by allocations to tech and communications. As of midday Friday, the year-to-date return on the S&P 500 Index was 18.9%, compared with 20.5% for the S&P 500 ESG Index.

“The political battle over ESG continues, although I’m inclined to believe that the House Oversight Committee’s ESG hearings this past quarter backfired a bit on ESG antagonists, as the takeaways from those hearings seemed to uncover and emphasize some important truths about sustainable investing, including that ESG is fundamentally just more data, and it is financially material data that fiduciaries (and individual investors) can use to seek improved