Displaying items by tag: mutual funds

As investors increasingly buy ESG funds, there has also been an increase in academic research on the impact of implementing ESG constraints on equity portfolios. However, there hasn't been as much attention paid to research on ESG fixed-income investing. Inna Zorina and Lux Corlett-Roy published their study “The Hunt for Alpha in ESG Fixed Income: Fund Evidence from Around the World,” in the Fall 2022 issue of The Journal of Impact and ESG Investing. In the study, they examined whether ESG fixed-income funds generate out- or under-performance after controlling for systematic fixed-income factors. They found that while ESG fixed-income funds with a higher level of risk generally produced higher returns, most ESG fixed-income funds did not produce statistically significant positive or negative gross alphas. In fact, only 7% of funds managed to deliver greater returns at a lower level of risk relative to the respective benchmark. The study revealed that across ESG fixed-income funds with a European, U.S., and global focus, performance was mainly driven by systematic fixed-income factor exposures such as term and default risk. The results led Zorina and Corlett-Roy to conclude: “ESG fixed-income mutual funds and ETFs have not consistently delivered statistically significant gross alpha controlling for key fixed-income factors. The majority of alphas are statistically insignificant and therefore indistinguishable from zero. This conclusion is similar across fixed-income funds with a European, US, and Global ESG investment focus.”

Finsum:A recent study that looked into whether fixed-income ESG funds provided outperformance revealed that ESG fixed-income mutual funds and ETFs have not consistently delivered statistically significant gross alpha.

While many investors who care about the environment have piled money into funds that focus on ESG strategies, they probably don’t know how much they are paying. That is according to a new study, which found that “at the average ESG fund, the effective fees can be three times what’s reported.” The reason for this is that ESG funds are nowhere near as pure as they look to be. According to a new Harvard study, on average, ESG funds have 68% of their assets invested in “the exact same” holdings as non-ESG funds. So, for every dollar you invest in an ESG fund, a little less than a third goes into stocks you could have gotten in a fund that isn’t ESG. The average ESG U.S. stock ETF charges 0.17% in annual fees, according to Morningstar, 0.05 percentage points more than non-ESG funds. Finance professor Malcolm Baker of Harvard Business School, one of the study’s authors, said, “Although only about a third of your money in the average ESG fund is distinctly green, you incur the fees on the entire portfolio. Therefore, you’re really paying three times as much for the thing you care about, the differentiated piece of the portfolio.”

Finsum:A recent study found that on average, 68% of holdings in ESG funds are the exact same as holdings in non-ESG funds, which makes these funds three times more expensive than you think.

Putnam Investments recently announced the availability of Putnam Sustainable Retirement Funds, a target-date series for the retirement savings marketplace. The suite invests in actively managed ESG-focused ETFs managed by Putnam. The funds implement a similar retirement glidepath philosophy as the firm’s other target-date offering, Putnam Retirement Advantage. The series offers vintages for every five years from 2025 through 2065, along with a maturity fund. The Putnam Global Asset Allocation team, which also manages Putnam Retirement Advantage, is responsible for the glidepath and both the tactical and ETF allocations of the Putnam Sustainable Retirement target-date suite. The series was developed in part to respond to the growing interest in sustainable investing within the defined contribution retirement market according to Steven P. McKay, Putnam’s Head of Global Defined Contribution Investment Only. Robert L. Reynolds, President, and Chief Executive Officer, of Putnam Investments, said the following as part of the announcement, “As the retirement marketplace continues to evolve and grow, there is tremendous appetite for meaningful product innovation that creates greater choice of offerings to help working Americans achieve their financial goals.” The funds will invest in ETFs across asset classes managed by the firm, including:

• Putnam Sustainable Future ETF (NYSE Arca: PFUT)
• Putnam Sustainable Leaders ETF (NYSE Arca: PLDR)
• Putnam ESG Core Bond ETF (NYSE Arca: PCRB)
• Putnam ESG High Yield ETF (NYSE Arca: PHYD)
• Putnam ESG Ultra Short ETF (NYSE Arca: PULT)
• Putnam PanAgora ESG Emerging Markets Equity ETF (NYSE Arca: PPEM)
• Putnam PanAgora ESG International Equity ETF (NYSE Arca: PPIE)

Finsum:Putnam recently announced the availability of Putnam Sustainable Retirement Funds, a target-date series that invests in actively managed ESG-focused ETFs managed by Putnam.

Robin Döttling, an assistant professor of finance in the Rotterdam School of Management at Erasmus University in the Netherlands, and Sehoon Kim, an assistant professor at the University of Florida’s Warrington College of Business, authors of a recently published academic study, found that individual investor demand for socially responsible investing “is highly sensitive to income shocks” and economic stress. The professors went through mutual fund flow data and surveyed investors' views of and expectations for sustainable investing. The study focused on the periods immediately before and after the COVID pandemic went global in early 2020. The results show that when times get tough for individual investors, helping to save the planet takes a backseat to selling funds that they believe may lose more during a downturn. When an economic shock results in incomes shrinking, investors become more risk-averse. In the authors’ words, “We start to view the emotional or nonfinancial appeal of ESG investing as ‘costly’ and ‘unsustainable’ if it means forfeiting returns.” However, the study found that demand for ESG investments from institutions such as pension funds remained more robust. Their actions are typically constrained by investment mandates and are often slower to respond to market shocks. In addition, those investors don’t have to face the same kind of pressures that individual investors deal with during COVID lockdowns and job losses.

Finsum:A recently published academic study conducted before and after the COVID pandemic found that individual investors sell ESG investments during economic downturns, while the demand for ESG remains robust among institutional investors.

Category: Wealth Management

Keywords: investors, ESG, covid, mutual funds

Capital Group, the parent company of American Funds, recently launched 12 active-passive model portfolios featuring Capital Group as the strategist. The models will be made up of American Funds' actively managed mutual funds and passively-managed ETFs from Vanguard, Schwab, and BlackRock. As the strategist, Capital Group will select the passive ETFs in each model and manage the allocations. The models are the latest in a series of active-passive model portfolios from Capital Group that include growth, growth and income, preservation and income, and retirement income strategies. They are designed to help advisors balance the demands of investment management with the need to scale their businesses and deepen client relationships. Capital Group's model portfolio business is an area of strategic focus for the firm. Its model portfolio business has more than tripled in assets under management since 2018. The new models bring the total number of model portfolios available nationally to 31. The new models comprise nine core models and three retirement-income-focused models. They include:

• Capital Group Active-Passive Global Growth Model
• Capital Group Active-Passive Growth Model
• Capital Group Active-Passive Moderate Growth Model
• Capital Group Active-Passive Growth and Income Model
• Capital Group Active-Passive Moderate Growth and Income Model
• Capital Group Active-Passive Conservative Growth and Income Model
• Capital Group Active-Passive Conservative Income and Growth Model
• Capital Group Active-Passive Conservative Income Model
• Capital Group Active-Passive Preservation Model
• Capital Group Active-Passive Retirement Income Model - Enhanced
• Capital Group Active-Passive Retirement Income Model - Moderate
• Capital Group Active-Passive Retirement Income Model - Conservative

Finsum:Capital Group added to its series of active-passive models with the launch of 12 new model portfolios, including nine core models and three retirement-income-focused models.