Sustainable Exchange-Traded Funds (ETFs), dominated by funds that pursue an ESG Integration-Mixed approach to sustainable investing, experienced dramatic growth in 2020. Total net assets expanded from $33.7 billion at the end of 2019 to $93.1 billion at year-end 2020, an increase of $59.4 billion or 176% (refer to Chart 1). The gains were fueled by positive net cash flows, capital appreciation as well as new sustainable ETF formations that added a net of 37 ETFs during the calendar year, not including a number of ETF re-brandings, to end the year at 154 ETFs and Exchange-Traded Notes (ETNs).
Chart 1: Growth of Sustainable ETFs/ETNs: 2015 – 2020
Source: TNA data-Morningstar. Sustainable fund classifications-Sustainable Research and Analysis
Slightly over half of these new funds were launched in the fourth quarter of the year, a record that was also distinguished by the introduction of several esoteric social-themed ETFs. Performance results were very strong across the board in 2020 as ETFs posted an average gain of 28.3%. Sustainable sector funds, including thematic funds, gained an average 83.8% with alternative energy-oriented funds literally knocking the lights out with returns as high as 233.3%. The top performing thematic funds accounted for 20% of the 2020 net assets gains.
The EFT segment is concentrated and dominated by ten firms that account for 92% of assets. These are led by BlackRock’s passively managed iShares and followed by JPMorgan’s actively managed ETFs. An analysis of the top 20 sustainable funds that cover $73.9 billion, or 80% of the sustainable segment’s assets under management, indicates that the dominant sustainable investing strategy in the segment is represented by funds that pursue an ESG Integration-Mixed approach.
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