The Renewable Normal

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What's going on?

Now this is something we could get used to: new analysis by Morgan Stanley showed US sustainable funds outperformed traditional funds last year.

What does this mean?

Investing in doing good is more popular than ever, with investors pouring $21 billion into US sustainable funds those focused on environment, social, and governance (ESG) factors last quarter alone. Thats more than double the previous quarterly record set in 2019. And it doesnt look like its at the expense of big gains either: Morgan Stanleys study of 3,000 US sustainable equity funds showed they outperformed their traditional rivals by 4% in 2020 (tweet this). They suffered lower drops in aggregate during market downturns too, suggesting they were safer investments in 2020 and since all the above findings held true across a longer timeframe, they potentially still are.

Why should I care?

Zooming in: Sustainable funds are green, not black and white.


Thing is, its hard to say for sure whats driving the performance of these funds. Morgan Stanleys study found that sustainable funds on average held more growth stocks think fast-growing tech companies than their non-ESG peers. And given that those stocks have done well over the last years, it could be that theyre more responsible for the outperformance than the whole sustainability thing is.



The bigger picture: Sustainable investing has room to grow in the States.


Sustainable investing mightve reached new heights in the US, but the countrys still a long way behind Europe. European sustainable funds were managing $1 trillion by the end of last year, compared to $180 billion in the US and just $40 billion in Asia. Still, American funds might be about to get another boost: the countrys new green-minded president is planning to lift curbs on the countrys pension funds from investing based on ESG factors.

Originally posted as part of the Finimize daily email.

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