More than $4 billion flowed into U.S. sustainable open-end and exchange-traded funds during the first quarter of 2019, setting a record for a quarter and approaching the total inflows for the group for all of 2018.
The estimated net flow of $4.1 billion to sustainable funds easily surpassed the previous record for a quarter, which was $1.9 billion in the fourth quarter of 2016.
The largest flow was into the newly launched Xtrackers MSCI USA ESG Leaders Equity ETF (USSG), which received $870 million in seed money in March from Finnish insurer Ilmarinen. That makes it the third-largest ETF focused on environmental, social, and governance factors. And it helped set the monthly record for ESG flows, which totaled $2 billion in March 2019. In only two months previously — December 2016 and January 2019 — had ESG net flows crossed the $1 billion mark.
But as seed money giveth, seed money also taketh away. Two passive low-carbon ETFs — iShares MSCI ACWI Low Carbon Target ETF (CRBN) and SPDR MSCI ACWI Low Carbon Target ETF (LOWC) — along with SPDR SSGA Gender Diversity ETF (SHE) and Goldman Sachs JUST U.S. Large Cap Equity ETF (JUST) experienced large net redemptions during the first quarter, which can be attributed to large investors redeeming some portion of their initial seed money. Net redemptions for those four ETFs totaled $450 million. ESG ETFs garnered about 36% of overall sustainable-fund flows.
These statistics are based on Morningstar’s estimated net flows into 286 open-end and exchange-traded funds that are available to U.S. investors, all of which thoroughly integrate ESG into their investment process, and/or pursue a sustainability-related theme, and/or seek measurable sustainable impact alongside financial return. This universe does not contain funds that employ only limited exclusionary screens without a broader emphasis on ESG, nor does it contain the growing number of funds that now acknowledge that they consider ESG factors in a limited way in their security selection. For more information on the list of funds, download my Sustainable Funds U.S. Landscape Report.
After USSG, the four largest flows went to Vanguard FTSE Social Index (VFTAX) ($366 million), TIAA-CREF Social Choice Equity (TISCX) ($345 million), TIAA-CREF Social Choice Bond (TSBIX) ($337 million), and Calvert Emerging Markets Equity (CVMIX) ($279 million).
At the firm level, DWS, the sponsor of USSG, led the way, followed by TIAA, Vanguard, and Calvert. TIAA firmwide had $782 million in net ESG flows, taking into account both TIAA-CREF open-end funds and Nuveen’s NuShares ESG ETFs.
The two new Vanguard ESG ETFs — Vanguard ESG U.S. Stock ETF (ESGV) and Vanguard ESG International Stock ETF (VSGX) — together attracted $362 million in first-quarter flows. Combined with Vanguard FTSE Social Index, which is an open-end fund, Vanguard attracted $728 million in ESG flows firmwide.
Calvert, a subsidiary of Eaton Vance, attracted an estimated $706 million in flows into its full suite of ESG funds.
The first quarter’s record inflow approached 2018’s overall flows of $5.5 billion. The 2018 total was also a record for a calendar year, and it came despite the overall equity and fixed-income fund universe having its worst year for flows since the financial crisis.
An earlier version of this article was published on Morningstar Direct.
Follow me on Twitter @Jon_F_Hale.