As the coronavirus started to spread, the global equity markets faced heavy loses. Then the price for oil dropped to levels last seen in the 1950s. Under these circumstances, investors want to know if their fund managers have produced an outperformance compared to the broad equity markets or not. With the trend towards ESG funds, it might be a topic of interest to evaluate whether funds that integrate ESG criteria in their portfolio management process have shown an outperformance compared to the market benchmarks and their conventional peers.
To answer these questions, we ran an analysis by comparing the performance of the 34,340 equity funds within the Lipper database with their respective technical indicator (January 31, 2020 to March 31, 2020) to evaluate if a fund has produced an outperformance against the market. We used the Lipper assigned technical indicator, as these are standard market benchmarks with which we can calculate a relative performance even for funds that do not disclose or have not assigned a fund manager benchmark. For example, we have assigned MSCI Global to our Lipper Global Equity Global classification. With regard to ESG/SRI funds, this does mean that the funds are compared to a standard market benchmark that may not take any ESG/SRI criteria into consideration. We chose January 31, 2020 as start date to best capture full month numbers that reflected the market peak through to present as best as possible.
Graph 1: Percentage of Out- and Underperforming Equity Funds (January 31, 2020 – March 31,2020)
Source: Refinitiv Lipper
Overall, 15,314 funds (44.60%) were able to outperform their respective technical indicators, while 19,026 funds (55.40%) showed an underperformance.
Splitting these results up into conventional funds (31,567 funds) and funds which have integrated ESG criteria into their portfolio management processes (2,773 funds) shows that the most conventional funds (17,750) have underperformed their respective technical indicators, while the majority of ESG funds (1,497) have outperformed their technical indicators.
Graph 2: Percentage of Out- and Underperforming Equity Funds by Fund Type (January 31, 2020 – March 31,2020)
Source: Refinitiv Lipper
A more detailed view shows that the average performance of the analyzed ESG funds (+0.43%) is also higher than the average performance of conventional funds (-0.65%), even as the outperforming conventional funds showed, on average, a higher performance (+4.34%) than their peers with integrated ESG criteria (+3.76%). But on the other hand, the underperforming conventional funds also showed higher underperformance (-4.53%) on average compared to their ESG peers (-3.48%). In addition, it is also noteworthy that the spread between the best and the worst performing funds for conventional funds (-63.08% to +46.71%) was much higher than the respective spread for ESG funds (-30.09% to +31.67%).
Graph 3: Performance of Equity Funds by Fund Type (January 31, 2020 – March 31,2020)
Source: Refinitiv Lipper
Even as these numbers may lead to the assumption that ESG funds are on average outperforming their conventional peers and might, therefore, be a better choice for investors, one needs to bear in mind that the analyzed period (January 31, 2020 to March 31, 2020) is too short to deliver statistically significant data, but it can be used as an indicator. In addition, it is important to take into consideration that the number of funds, as well as the number of different peer groups (Lipper Global Classifications) for conventional funds, is much higher than for ESG funds. However, since we used the technical indicator to calculate the relative performance of all funds, the results between the two different product groups are comparable.
The views expressed are the views of the author, not necessarily those of Lipper or Refinitiv.
