ESG fund flows fall amid market turbulence

Net flows into ESG funds were down 115 per cent in January 2022 compared with the same month last year, according to data from Hargreaves Lansdown, which reported its first month of negative net flows into ESG funds since March 2020.

Emma Wall, head of investment analysis and research, Hargreaves Lansdown, commented: “January saw significant market volatility as fears of a Fed rate rise cooled the appeal of growth stocks. The Nasdaq index of US tech stocks recorded its worst month since the pandemic slump in March 2020, as investors took gains and instead sought out stocks such as financials, which tend to benefit from higher interest rates. ESG funds were caught up in the style rotation as the appeal of growth-orientated names waned.”

Net flows into ESG funds (Source: HL)
Year YoY % change
Jan 2016 Base Year
Jan 2017 -27%
Jan 2018 753%
Jan 2019 -58%
Jan 2020 3082%
Jan 2021 115%
Jan 2022 -115%

Before “sounding the death knell” for responsible investing, however, Wall says it’s important to consider the context.

“January 2021 was a record breaking month for flows into responsible funds on the HL plat-form – so January 2022 always had a high bar to beat. Last month was also a choppy month for fund flows across all sectors, as investors sought to make sense of the higher-rate outlook,” she explained. “The increased popularity of responsible investment funds will be a structural shift, rather than a faddy trend, and while there may be months where flows slow, assets under management are likely to grow steadily over time. The Investment Association fund flows data for 2021 supports this, with retail investors allocating more to responsible funds through the year.”

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