Sustainable investing funds can outperform traditional funds and reduce investment risk, according to a new Sustainable Reality report published today by the Morgan Stanley Institute for Sustainable Investing (The Institute). In the first half of 2020, the COVID-19 pandemic induced a global recession, causing capital markets around the world to experience the sharpest shock in their history, followed by months of severe volatility. This analysis of U.S. equity and bond funds found that sustainable funds weathered this difficult period better than their traditional counterparts.
Key Findings
In January-June 2020:
- U.S.-based sustainable equity funds outperformed their traditional peers by a median of 3.9%.
- U.S.-based sustainable taxable bond funds outperformed their traditional peers by a median of 2.3%.
“This analysis adds yet another proof point to the fact that sustainability considerations can be material to investment and business decisions, even in the most volatile and uncertain markets” said Audrey Choi, Morgan Stanley’s Chief Sustainability Officer and CEO of the Institute for Sustainable Investing. “This mounting evidence will no doubt continue to encourage investors to include positive environmental and social impact in their decision making.”
These findings build on the Institute’s 2019 report, “Sustainable Reality: Analyzing Risk and Returns of Sustainable Funds”, which found that in any given year during the 2004-2018 evaluation period, sustainable funds performed in line with traditional counterparts but provided more downside protection, especially in times of volatility.
“So far in 2020, we have witnessed unprecedented challenges in the capital markets, but sustainable investments have continued to perform well in this environment,” said Matthew Slovik, Head of Global Sustainable Finance at Morgan Stanley. “This reinforces the value of sustainable investing and further dispels the myth that investors seeking to drive positive environmental and/or social impact must accept a financial trade-off.”
These findings were compared to our 2019 report, which assessed sustainable funds’ historical performance against traditional funds from 2004-2018 using Morningstar data. Institute analysts applied the same methodology to evaluate the performance of U.S.-domiciled sustainable funds investing in U.S. equities and taxable bonds active in 2019 against their traditional peers. Analysts then examined the performance of the same asset classes in the first half of 2020 when the coronavirus pandemic induced significant volatility in the capital markets.
To read more about the Morgan Stanley Sustainable Realities paper and the findings, please visit the Morgan Stanley Institute for Sustainable Investing.
About Morgan Stanley
Morgan Stanley (NYSE: MS) is a leading global financial services firm providing investment banking, securities, investment management and wealth management services. With offices in more than 41 countries, the Firm's employees serve clients worldwide including corporations, governments, institutions and individuals. For more information about Morgan Stanley, please visit www.morganstanley.com.
About the Institute for Sustainable Investing
The Morgan Stanley Institute for Sustainable Investing (The Institute) builds scalable finance solutions that seek to deliver competitive financial returns while driving positive environmental and social impact. Founded in 2013, The Institute creates innovative financial products, thoughtful insights and capacity building programs that help maximize capital to create a more sustainable future. For more information about the Morgan Stanley Institute for Sustainable Investing, visit www.morganstanley.com/sustainableinvesting.
Disclosures
This has been prepared for informational purposes only, and is not a solicitation of any offer to buy or sell any security or other financial instrument, or to participate in any trading strategy. This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Securities discussed in this report may not be appropriate for all investors. It should not be assumed that the securities transactions or holdings discussed were or will be profitable. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor.
Past performance is not a guarantee or indicative of future performance. Historical data shown represents past performance and does not guarantee comparable future results.
This material contains forward-looking statements and there can be no guarantee that they will come to pass.
Information contained in this material is based on data from multiple sources and Morgan Stanley makes no representation as to the accuracy or completeness of data from sources outside of Morgan Stanley.
The returns on a portfolio consisting primarily of Environmental, Social and Governance (“ESG”) aware investments may be lower or higher than a portfolio that is more diversified or where decisions are based solely on investment considerations. Because ESG criteria exclude some investments, investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria.
Diversification does not guarantee a profit or protect against loss in a declining financial market.
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Investing in the market entails the risk of market volatility. The value of all types of investments, including stocks, mutual funds, exchange-traded funds (“ETFs”), and alternative investments, may increase or decrease over varying time periods.
An investment in an exchange-traded fund involves risks similar to those of investing in a broadly based portfolio of equity securities traded on exchange in the relevant securities market, such as market fluctuations caused by such factors as economic and political developments, changes in interest rates and perceived trends in stock prices. The investment return and principal value of ETF investments will fluctuate, so that an investor’s ETF shares, if or when sold, may be worth more or less than the original cost.
Investors should carefully consider the investment objectives and risks as well as charges and expenses of a mutual fund/exchange-traded fund before investing. To obtain a prospectus, contact your Financial Advisor or visit the fund company’s website. The prospectus contains this and other information about the mutual fund/exchange-traded fund. Read the prospectus carefully before investing.
Equity securities may fluctuate in response to news on companies, industries, market conditions and general economic environment. Companies paying dividends can reduce or stop payouts at any time.
Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.
Fixed Income investing entails credit risks and interest rate risks. When interest rates rise, bond prices generally fall. Fixed income investments are advantageous in a time of low inflation, but do not protect investors in a time of rising inflation. Interest income on government securities is subject to federal income taxes, but exempt from taxes at the state and local level.
Bond funds and bond holdings have the same interest rate, inflation and credit risks that are associated with the underlying bonds owned by the funds. The return of principal in bond funds, and in funds with significant bond holdings, is not guaranteed.
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