The Bottom Line: Sustainable actively managed US equity mutual funds and ETFs generated better average performance results in July relative to their conventional fund counterparts.
Average performance of actively managed sustainable diversified US equity funds versus conventional funds: July 2022, Y-T-D and trailing 12-months to July 31, 2022
Note of Explanation: Sustainable US equity funds, both mutual funds/share classes and ETFs, include large-cap, mid-cap and small-cap equity funds. Data sources: Morningstar Direct, Sustainable Research and Analysis LLC.
Observations:
- Sustainable actively managed US equity funds, a total of 304 large, mid-cap and small-cap equity mutual funds and ETFs, including mutual fund share classes that were in operation throughout the entire month of Jul 2022, registered an average total return of 9.58%. This compares to conventional funds, qualified on the same basis, that posted an average gain of 8.95%, or a one-month deficit of 63 basis points.
- At the same time, conventional US equity funds outperformed their sustainable funds counterparts, based on their average performance results on a year-to-date and trailing 12-month basis. Conventional funds, a larger universe consisting of 5,917 funds/share classes posted an average return of -14.56% and -10.29% for the year-to-date interval and trailing 12-months while actively managed sustainable equity funds registered average declines of 16.08% and 11.05%.
- When performance results are evaluated on an average weighted basis, giving more weight to larger funds, the trailing 12-month performance picture changes. The same cohort of sustainable funds registered an average weighted return of -9.28% versus -10.05% for conventional funds. As for the year-to-date interval, the results are identical.
- The 12-month 77 basis points (bps) outperformance attributable to sustainable funds based on their average weighted return is attributable to slightly better results achieved by the largest sustainable equity funds versus the smaller funds in the segment. The largest sustainable funds, with assets over $100 million, produced an average return of -15.5% versus a decline of 16.8% recorded by funds with assets less than $10 million. The smallest funds are less efficient, they face challenges trying to implement their strategy at less-than-optimal fund sizes and their expense ratios, on average, are 20 bps higher.
