The Bottom Line: Launches of sustainable mutual funds and ETFs in 2022 were dominated by actively managed portfolios investing in equities subject to higher expenses.
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Sustainable mutual funds and ETFs new listings: 2022
Notes of Explanation: A total of 53 ETFs were launched in 2022 and 41 mutual funds, representing 102 share classes, with data points for Q4 revised relative to previously published SRA research. New share classes added to existing funds omitted from the analysis of new fund launches. Mutual fund and ETF totals are cumulative. Data revised Data source: Morningstar Direct. Research by Sustainable Research and Analysis (SRA).
Observations:
- Offering investors additional sustainable investing options, a total of 94 sustainable mutual funds (102 share classes) and ETFs were launched in 2022, with 53 sustainable ETF listings outpacing the 41 mutual fund originations that, on a combined basis, accounted for $2.8 billion in assets valued as of December 31, 2022.
- New launches were dominated by equity-oriented funds that led with 66 funds versus 22 fixed income mutual funds and ETFs. However, new ETFs consisted of a greater number of equity funds relative to mutual funds. On the other hand, sustainable fixed income mutual fund offerings outpaced ETFs by a ratio of almost 3 times.
- Actively managed funds were dominant versus passively managed or index funds. That said, the new listings diverged in two important ways. New mutual funds were entirely actively managed while new ETF listings included a combination of both. Of these, 37 actively managed ETFs were launched versus 17 index funds, or slightly over twice as many. Second, as to be expected, there were significant variations in expense ratios as between index funds, with an average expense ratio of 26 basis points, and actively managed funds with an average expense ratio of almost 90 basis points. Also, actively managed ETFs charged lower fees on average and lower fees were charged by actively managed fixed income mutual funds versus actively managed equity mutual funds. The former was elevated in large part due to higher priced Fidelity advisor-directed funds.
- As noted in a recent research article published by Sustainable Research and Analysis, the new issue momentum favoring actively managed ETFs is unfolding even as most active managers underperform most of the time relative to securities market indices. According to S&P Indices Versus Active (SPIVA) research that measures the performance of actively managed funds against their relevant S&P index benchmarks, this is the case not only for equity funds but also fixed income and global/international managers. These conclusions also apply across geographies.
- The number of management firms adding more than one fund to an existing portfolio of sustainable mutual funds and ETFs and the number of firms adding a single fund were just about equally divided. A notable example in the first category is Fidelity Investments with its launch of 22 mutual funds that are largely directed at its advisor client base, including funds dedicated to certain programs affiliated with Strategic Advisers (SAI funds). In the second category is Vanguard that launched its third actively managed sustainable fund, the Vanguard Global Environmental Opportunities Stock Fund (Admiral shares VEOAX and Investor shares VEOIX). The fund is managed by Ninety One North America, Inc., a unit of Nine One Plc with combined assets of $38 billion, that invests the fund’s portfolio across the globe in so called “environmental companies” that derive at least 50% of their revenues from various activities deemed to contribute positively to environmental change.
