Baillie Gifford Positive Change, Liontrust Sustainable Future Managed Growth and Pictet Clean Energy were just some of the best performing sustainable and environmental, social & governance (ESG) funds from 2020, according to data from FE Analytics.
While awareness of sustainable and ESG investing had been gaining momentum for some years prior to 2020, the coronavirus pandemic forced social and environmental issues into the spotlight and resulted in higher inflows.
Inflows were supported by the strong performance of sustainable and ESG strategies during the pandemic, debunking ingrained beliefs that investing for environmental or social benefit can compromise performance.
Indeed, the MSCI ACWI ESG Focus index outperformed the broad MSCI ACWI last year, making a total return of 14.88 per cent versus 12.67 per cent.
Performance of MSCI ACWI ESG Focus and MSCI ACWI indices in 2020
Source: FE Analytics
This outperformance of ESG strategies was seen in the equity fund universe with several sustainable portfolios featuring near or at the of its sector in 2020 performance rankings.
Top-25 best performing ESG sustainable funds in 2020
Source: FE Analytics
Looking at the sustainable ESG funds that performed the best last year, two Baillie Gifford portfolios feature at the top: Baillie Gifford Positive Change and Baillie Gifford Global Stewardship.
Many of long-term, growth-focused Baillie Gifford’s strategies have featured at the top of various 2020 performance tables, as the sectors they favoured outperformed.
This was no different in its sustainable portfolios which also hold some of the big tech names which were 2020’s ‘winners’.
Tesla, for example, saw a 700 per cent increase in its share price last year and is the Baillie Gifford Positive Change and Baillie Gifford Global Stewardship’s top holding.
The £2.2bn Baillie Gifford Positive Change fund is run by Kate Fox and Lee Qian. Not only was the fund the best performing ESG sustainable portfolio it was the second-best performer in the entire IA Global sector, and the fifth best-performing fund across all asset classes in 2020.
The fund invests in companies which are “contributing towards a more sustainable and positive world”, according to the managers, including those that are contributing towards the United Nation’s sustainable development goals.
Performance of fund vs sector & benchmark in 2020
Source: FE Analytics
It made a total return of 80.08 per cent last year, significantly outperforming the IA Global (15.27 per cent) and the MSCI ACWI index (12.67 per cent).
Meanwhile, the £573.8m Baillie Gifford Global Stewardship fund – managed by head of governance and sustainability Caroline Cook, Gary Robinson, Iain McCombie, Andrew Cave, Matthew Brett, Mike Gush, Zaki Sabir and Josie Bentley – invests in a diversified portfolio of 70-100 stocks, mitigating ESG risks by applying ‘sin’ sector exclusions and screening for companies which are a net benefit to society.
The top-rated fund made a total return of 70.06 per cent last year.
The third best performing fund was the Aegon Global Sustainable Equity fund.
Managers Andrei Kiselev and Malcolm McPartlin took over the €276m fund in May 2020. The fund is unconstrained from the benchmark and has no geographical limits on where it can allocate.
It follows Aegon Asset Management’s approach to responsible investment which consists of four main pillars: ESG integration, engagement and voting, exclusion, and reporting.
During 2020, the fund made a total return of 57.61 per cent.
Another top-performing fund was the $4.2bn Pictet Clean Energy fund.
Renewable energy was a major sustainable investment theme last year, with several governments announcing new legislation to help meet its carbon and climate targets going forward.
The Pictet Clean Energy fund invests in companies which are contributing to lowering global carbon emissions and the transition to cleaner energy sources by focusing on four main areas: renewable energy, energy efficiency, enabling technologies, and infrastructure.
Rounding out the top-five was the $636.5m Ninety One Global Environment fund, which made a 47.35 per cent return in 2020.
The fund overseen by Dierdre Cooper and Graeme Baker invests in companies the mangers consider are contributing to positive environmental change, favouring companies operating in services, infrastructures, technologies and resources related to environmental sustainability.
The asset manager with the most funds among the top-25 ESG-sustainable strategies, was Liontrust Asset Management, which had three: Liontrust Sustainable Future Managed Growth, Liontrust Sustainable Future Global Growth, and Liontrust Sustainable Future European Growth.
All three have been run since launch in 2001 by Peter Michaelis, who joined Liontrust in 2017 following its takeover of Alliance Trust Investments.
All three portfolios use the proprietary Sustainable Future process, which looks for companies within three themes: firstly, improving people’s quality of life either through medicine, technology or education; secondly, driving the improvements into the efficiency which scarce resources are being used; and, thirdly, helping to rebuild a more stable, resilient and prosperous economy.
The best performer was the £638.7m, five FE fundinfo Crown-rated Liontrust Sustainable Future Managed Growth fund, which Michaelis manages alongside Simon Clements and Chris Foster. It made a total return of 33.17 per cent last year.