The bottom line: Only three explicitly classified sustainable closed-end funds are available to interested investors, including two funds that emphasize positive environmental and social impacts.
Performance results posted by sustainable closed-end funds: Y-T-D to August 31, 2023 and calendar year 2022Notes of Explanation: *Estimates. Performance results for closed-end funds based on NAV to August 31, 2023. Sources: CEF Connect and Sustainable Research and Analysis.
Notes of Explanation: *Estimates. Performance results for closed-end funds based on NAV to August 31, 2023. Sources: CEF Connect and Sustainable Research and Analysis.
Observations:
- Closed-end fund investors interested in sustainable investing have limited options to choose from, based on explicitly classified sustainable investment companies. Out of 433 closed-end funds valued at $233 billion, only three funds are explicitly classified by Morningstar as sustainable investment funds. These relatively new funds, which pursue varying investment objectives, fundamental as well as sustainable investing approaches, were valued at $2.3 billion as of August 31, 2023 and account for just 1% of the value of closed-end funds. That said, it’s likely that other funds within the universe of closed-end funds employ sustainable investing approaches, such as ESG integration, even while they are not explicitly classified as such.
- Closed-end funds are a type of investment company that issues a fixed number of shares that trade intraday on stock exchanges at market-determined prices. Investors in a closed-end fund buy or sell shares through a broker, just as they would trade the shares of any publicly traded company. Some funds employ leverage to boost returns, but this strategy amplifies their volatility.
- While the three closed-end funds are classified as sustainable funds, because of their differing investment objectives, performance results achieved by the three funds can differ dramatically, as illustrated in the chart above.
- The largest of the three funds, at $1.8 billion, is the BlackRock ESG Capital Allocation Term Trust (ECAT) that was launched at the end of September 2021. The fund, which is actively managed by BlackRock Advisors LLC, follows an unconstrained approach with the ability to invest in public and private markets across different asset classes. The fund can but does not intend to use leverage at this time. The fund seeks to identify untapped growth opportunities tied to the evolution of ESG and it also employs an exclusionary approach to screen out certain issuers.
- The next largest fund is the $332 million Nuveen Core Plus Impact Fund (NPCT), launched in April 2021. This actively managed fund, advised by Nuveen Fund Advisors, employs leverage up to approximately 35% of the fund’s managed assets and seeks to achieve total returns through high current income and capital appreciation by investing primarily in fixed income investments while giving special consideration to certain impact and environmental, social and governance (ESG) criteria. In connection with its impact objectives, NPCT identifies investments that will generate positive, measurable social and environmental impact alongside a competitive financial return. The fund issues expansive quarterly impact reports that should satisfy impact-oriented investors.
- The third fund and the oldest is the $200 million Ecofin Sustainable & Social Impact Fund (TEAF). Also actively managed, by TCA Advisors and Ecofin Advisors Limited, the fund seeks to provide a high level of total return with an emphasis on current distributions. Leverage ranges between 10%-15% of total assets. TEAF provides investors access to a combination of public and direct investments in essential assets that are making a positive social, environmental and economic impact on clients and communities. Some but limited impact reporting is provided. The fund was launched in 2019 but was renamed in June 2021.
