The Bottom Line: Sustainable investment funds registered a modest 0.47% average gain in June, following a strong 3.8% May increase, supported by stocks and bonds.
The S&P 500 continued to register gains in June, rising 3.6%
Fueled by enthusiasm for AI and expected interest-rate cuts before the end of the year in the light of softening economic data, the S&P 500 continued to register gains in June. After recording a 5% total return in May, the index posted seven new closing highs in June and ended the month up 3.6%, with five of the eleven S&P sectors also registering advances, led by Information Technology, up 9.3%. At the other end of the range, Utilities trailed and gave up 5.8%. This was the benchmark’s fifth monthly gain this year, for a year-to-date increase of 15.9% and a trailing twelve-month return of 24.6%. At the same time, the S&P 500 ESG index, designed to meet S&P’s sustainability criteria while maintaining similar overall industry group weights as the S&P 500, was up 3.4% in June. While trailing in June, the ESG index is ahead of the S&P 500 with returns of 15.8% year-to-date and 25.1% over the trailing twelve-months. The performance of the conventional large cap index and ESG version have been driven by a small number of growth-oriented technology companies that now dominate the index, including Microsoft Corp., Amazon.com Inc., Meta Platforms Inc., Apple Inc. Alphabet Inc., Nvidia Corp. and the recovering Tesla Inc. The so-called Magnificent Seven accounted for 79% of the benchmark’s total return in June while on an equally weighted basis, the index was down 0.45% in June and only up 11.8% over the last twelve months—less than half the S&P 500 return. The same companies drove the performance of the S&P 500 Growth Index, up 6.98% in June, versus the S&P 500 Value Index that sustained a narrow -0.65% decline. This dynamic also propelled large cap conventional and sustainable growth funds to achieve top results in June. At the same time, small companies experienced another challenging month, with the Russell 2000 dropping 0.93%, after dropping around 1% in May and an even lower -1.69% posted by the Russell 2000 Value Index.
Market concerns may lead to volatility in the next few months
The narrow breadth of the market combined with some stretched valuations has invited concerns, as have uncertainties surrounding the US presidential election, corporate earnings, Federal Reserve policy and the direction of interest rates, inflation and the strength of the economy, as well as geopolitical issues (Gaza, Ukraine, foreign election shifts). How these uncertainties play out could introduce stock market volatility over the next several months.
Bonds posted a slight 0.95% gain
On the bonds side, the Bloomberg Aggregate US Bond Index posted a slight 0.95% gain in June and a positive 2.6% increase over the trailing twelve months. During the month, the FOMC met and as expected, kept interest rates unchanged. The 10-year U.S. Treasury Bond closed at a yield of 4.36%, down from the prior month’s 4.51%.
Strong performance in India lifts emerging markets
Overseas, strong performance in emerging markets, for example in India where stocks have been experiencing an upward trend due to positive macroeconomic factors in 2024, notwithstanding a drop in early June following Modi’s lackluster election results, pushed the MSCI Emerging Markets Index higher by 3.94% in June while the MSCI ACWI, ex USA Index and MSCI EAFE Index gave up 0.10% and -1.61%, respectively.
Focused sustainable investment funds posted a combined average return of 0.47% in June
Against this backdrop, focused sustainable mutual funds and ETFs, a total of 1,470 funds/share classes with total net assets in the amount of $347.2 billion, posted a combined average return of 0.47% in June, a 5.4% pick up year-to-date and an average gain of 10.6% over the trailing twelve months. This was a modest average gain, the narrowest non-negative advance so far this year, after recording a strong 3.8% average increase in May. Across 75 investment categories, 46 categories or 61% achieved positive average rates of return in June. Average returns ranged from a high of 6.5% posted by Equity India funds and a low of -16.5% recorded by Trading-Leveraged Equity Funds.
Notes of Explanation: Fund investment categories listed in descending order, based on June 2024 average performance of all funds/share classes within the investment category. The three- and five-year results represent average annual total returns. Source: Morningstar Direct and Sustainable Research and Analysis LLC.
