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ESG funds see record inflows in September

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A net £392m of new capital flooded into ESG equity funds in September, helping to offset the dwindling inflows into other asset classes.

The latest Fund Flow Index from fund technology company, Calastone, revealed that the high monthly inflows into ESG helped it attract £1bn of net sales in Q3 this year. This is almost 10 times as much as the three month period in 2019.

Year-to-date, active ESG equity funds have attracted £2.4bn of inflows and Calastone noted that buy orders outstripped sell order by 2.6 to one, “an unexceptionally unusual disparity indicating the huge demand for the products”.

Further, active ESG equity funds have accounted for all the cumulative new money flowing into active funds since late 2018.

Calastone added that since November 2016, all the net new money into active funds has been into the ESG category and before then “investors effectively ignored this sector”.

Compared to equity funds of all kinds, they’ve seen net inflows of just £2.9bn this year, while across all asset classes, fund inflows were only half the long-run average in September.

As a stark contrast, in the two years to 2018, traditional active equity funds received £11.3bn of inflows but by the end of September 2020, all that money had flowed out again.

Active funds suffered £5.7bn of outflows year-to-date, while index funds (passive funds) have also become big winners, attracting £6.1bn of inflows so far this year.

However, Calastone said investors continued to shun UK equity funds amid the rising Brexit discussions.

‘Clear bright spots and clear no-go areas’

Edward Glyn, head of global markets at Calastone said: “Investors are nervous. The vast sums of cash accumulating in households’ savings accounts are not finding their way into asset markets as savers both add to their rainy-day funds and fret about taking on more investment risk at a time of such uncertainty.

“Even so there are clear bright spots and clear no-go areas. UK-focused equity funds seem condemned to the doldrums unless the Brexit talks yield a positive outcome and income funds are out of favour while the dividend pain is prolonged.

“But the strong demand for ESG funds shows that an interesting story can still drive investor demand, while the appetite for global funds suggests that investors recognise the value of diversifying their equity investments at a time when unexpected good and bad news can come seemingly from any direction at any time.”

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