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Investors are enjoying an explosion in the range of sustainable investment options in the market. Between 2016 and 2017 there was a 340% rise in funds that screen assets for their sustainability features, or lack thereof, with assets under management (AUM) jumping from $33.6 billion to $147.7 billion across the period, according to the Responsible Investment Association Australasia (RIAA). Total AUM in responsible investment funds rose by 39% from $622 billion to $866 billion during that time.
With so many new options – and many different approaches to sustainable investing – here, we explore some of the top international and local funds and examine what’s driven their performance.
There’s mixed data coming from the market about whether sustainable funds outperform mainstream funds.
Research released in March this year by superannuation fund research house SuperRatings has found the median performance of sustainable investment funds is lower than the median performance of the SuperRatings SR50 Balanced (60-76) Index of traditional balanced super funds. The research also found sustainable funds have higher median fees than mainstream funds.
Other industry data indicates a different result, although it’s impossible to compare the two pieces of research given they use different samples. The RIAA’s Responsible Investment Benchmark Report 2018 Australia is based on data collected from 112 asset managers including 17 international asset managers that have made a public commitment to responsible investment.
This report found core responsible investment Australian share funds outperformed average large cap Australian share funds over three, five and ten years although they underperformed the market in 2017. Responsible funds returned 5.4% over 10 years versus the 4.0% return the S&P/ASX300 delivered across the same period. Core responsible investment international share funds outperformed large cap international share funds over one and three year time horizons and matched the ten year performance.
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There’s a standout winner in international, actively managed sustainable funds. By far the best fund is Generation Wholesale Global Share Fund, set up by former US vice president Al Gore and US fund manager David Blood. The fund has returned 18.39% over five years, 19.98% over three years and 18.09% over one year. It has beaten its benchmark MSCI World ex Australia Net Index over the same period, which achieved a 15.38% return over five years, a 13.71% return over three years and a 12.3% return over one year.
But there’s a catch – the fund is closed to new investors although existing investors may be able to contribute new funds as redemptions are made.
“This fund has outperformed the global benchmark by 4.42% since inception 12 years ago,” says Stuart Barry, practice principal and senior financial adviser for TasEthical.
This actively-managed Generation Wholesale Global Share Fund doesn’t use the word sustainable in its name because Gore believes best practice investing should consider sustainability as a matter of course because it’s simply smart to do so and will produce outperformance in the long term.
Investors who cannot access Generation Wholesale Global Share Fund may wish to look into Nanuk New World Fund, which invests in the environmental sustainability theme. This fund has returned 15.8% over three years versus the 13.3% return of its benchmark, the TSE Environmental Opportunities All Share Total Return Index in Australian dollars.
There’s a growing range of Australian sustainable investment funds available to retail investors, but wide variance in their performance and investment approach.
In March 2019 superannuation research house SuperRatings revealed the top 5 performing sustainable super funds over 10 years. All these funds outperformed the benchmark (the SR50 Balanced Index) which was 8.9% per year.
|Fund||Total fee on $50k balance||10-year return (% per year)|
|HESTA – Eco Pool||$670||11.10%|
|VicSuper FutureSaver – Socially Conscious Option||$463||10.30%|
|AustralianSuper – Socially Aware||$448||10.00%|
|WA Super Super Solutions Pers – Sustainable Future||$573||9.50%|
|UniSuper Accum (1) – Sustainable Balanced||$281||9.30%|
HESTA’s Eco Pool balanced option came top of SuperRatings’ survey. It has delivered an average of 11.1% a year over 10 years, versus the 8.9% return the SR50 Balanced (60-76) Index median achieved. This fund invests in companies that outperform on financial, environmental, social and governance criteria. It doesn’t invest in businesses that are exposed to fossil fuel activity.
According to SuperRatings’ research, another fund, the VicSuper FutureSaver – Socially Conscious Option, produced a 10.3% return over the same period. This fund invests in Australian and international equities and fixed income assets that meet its social and environmental objectives.
SuperRatings’ research also showed AustralianSuper’s – Socially Aware fund generated 10.0% versus the benchmark 8.9% return. This fund doesn’t invest in companies with exposure to coal, oil and gas or uranium reserves, or entities that have been embroiled in human rights, labour, environmental or governance controversies, that produce tobacco, cluster munitions or landmines or whose boards only represent one gender.
WA Super Super Solutions Pers – Sustainable Future fund, which invests in global shares and bonds with a focus on impacting investing, produced a 9.5% return versus the benchmark.
UniSuper Accum (1) – Sustainable Balanced fund produced a 9.3% return versus the benchmark. The fund also had the lowest fees of the top 5 performers at $281 per annum (based on a $50,000 balance), less than half the Sustainable Balanced option median of $662. This fund comprises a diversified portfolio of Australian and international assets selected based on sustainable investment criteria and some negative screens.
Kirby Rappell from SuperRatings said that “when considering sustainable alternatives, it is important to look at each individual fund’s mandate, their process for investing sustainably, and of course the industries and businesses they do and do not invest in.”
Paul Pellegrino, a financial adviser with Partners in Planning, says it’s important for SMSF trustees to realise investing responsibly does not mean lower returns. “When done well, sustainable investing can help achieve positive social impacts, alongside sound financial results.”
He expects demand for sustainable investment options will only grow as demand from institutions and retail investors continues to rise and as fees drop.