Morgan Stanley Sustainable Reality Report Reveals U.S. Sustainable Funds Outperformed Traditional Funds by 4.3% in 2020
A new study by the Morgan Stanley Institute for Sustainable Investing reveals that sustainable investing funds outperformed traditional funds in 2020, offering stronger returns and reduced risk during market volatility. Key findings include:
- A median total return of 4.3% higher for sustainable equity funds and 0.9% for sustainable taxable bond funds compared to traditional counterparts.
- Sustainable funds demonstrated lower median downside deviation, indicating reduced risk.
This underscores the reliability of sustainable investments, debunking myths of performance sacrifice.
- Sustainable equity funds outperformed traditional counterparts by 4.3% in median total return.
- Sustainable taxable bond funds had a 0.9% higher median total return than traditional taxable bond funds.
- Sustainable equity funds showed a 3.1% lower median downside deviation compared to traditional funds.
- Sustainable bond funds exhibited a 0.4% lower median downside deviation.
- None.
Sustainable investing funds outperformed traditional funds and reduced investment risk throughout 2020, according to a new Sustainable Reality study published today by the Morgan Stanley Institute for Sustainable Investing (The Institute). This analysis of U.S. equity and taxable bond funds found that sustainable funds weathered the severe market volatility throughout 2020 better than their traditional counterparts, indicating that sustainable funds are more reliable in times of stress.
Key Findings
In 2020:
-
U.S. sustainable equity and taxable bond funds continued to outperform their traditional fund counterparts on a total return basis throughout 2020
-
Median total return for U.S. sustainable equity funds was
4.3% higher than traditional funds -
Median total return for U.S. sustainable taxable bond funds was
0.9% higher than traditional taxable bond funds
-
Median total return for U.S. sustainable equity funds was
-
U.S. sustainable equity and taxable bond funds also continued to be less risky than their traditional counterparts as measured by median downside deviation
-
U.S. sustainable equity funds’ median downside deviation was
3.1% less than traditional peer funds -
U.S. sustainable bond funds’ median downside deviation was
0.4% less than traditional peer funds
-
U.S. sustainable equity funds’ median downside deviation was
“The difficult events of 2020 underscored the importance of sustainability concerns and strengthened the rationale for sustainable investing,” said Audrey Choi, Morgan Stanley’s Chief Sustainability Officer and CEO of the Institute for Sustainable Investing. “Sustainable funds’ strong risk and return performance during an exceptionally turbulent year further erodes the persistent misconception that sustainable investing requires a performance sacrifice.”
These findings build on the Institute’s 2020 report, which found that sustainable funds weathered the COVID-19 pandemic better than their traditional counterparts during first half of 2020. The Institute has analyzed sustainable and traditional funds’ performance since 2004, and in any given year during the 2004-2018 evaluation period, sustainable funds performed in line with traditional counterparts but provided more downside protection, especially in times of volatility.1
“The U.S. sustainable investing market ended the year on a high note, with record-breaking net inflows in October, November and December,”2 said Matthew Slovik, Managing Director and Head of Global Sustainable Finance at Morgan Stanley. “Amid this continued growth, analyzing the performance of sustainable investments, and proving their resiliency, is critical to advance the field and to encourage others to invest with an ESG mindset.”
These findings were compared to the Institute’s 2019 report, which compared sustainable and traditional funds’ historical risk and return performance from 2004-2018 using Morningstar data. Institute analysts applied the same methodology to evaluate the performance of U.S.-domiciled sustainable funds investing in U.S. equities and taxable bonds active in 2020 against their traditional peers when the coronavirus pandemic induced significant volatility in the capital markets.
To read more about the Morgan Stanley Sustainable Realities paper and the findings, please visit the Morgan Stanley Institute for Sustainable Investing.
About Morgan Stanley
Morgan Stanley (NYSE: MS) is a leading global financial services firm providing investment banking, securities, wealth management and investment management services. With offices in more than 41 countries, the Firm's employees serve clients worldwide including corporations, governments, institutions and individuals. For more information about Morgan Stanley, please visit www.morganstanley.com.
About the Institute for Sustainable Investing
The Morgan Stanley Institute for Sustainable Investing (The Institute) builds scalable finance solutions that seek to deliver competitive financial returns while driving positive environmental and social impact. Founded in 2013, The Institute creates innovative financial products, thoughtful insights and capacity building programs that help maximize capital to create a more sustainable future. For more information about the Morgan Stanley Institute for Sustainable Investing, visit www.morganstanley.com/sustainableinvesting.
Disclosures
This has been prepared for informational purposes only, and is not a solicitation of any offer to buy or sell any security or other financial instrument, or to participate in any trading strategy. This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Securities discussed in this report may not be appropriate for all investors. It should not be assumed that the securities transactions or holdings discussed were or will be profitable. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor.
Past performance is not a guarantee or indicative of future performance. Historical data shown represents past performance and does not guarantee comparable future results.
This material contains forward-looking statements and there can be no guarantee that they will come to pass.
Information contained in this material is based on data from multiple sources and Morgan Stanley makes no representation as to the accuracy or completeness of data from sources outside of Morgan Stanley.
The returns on a portfolio consisting primarily of Environmental, Social and Governance (“ESG”) aware investments may be lower or higher than a portfolio that is more diversified or where decisions are based solely on investment considerations. Because ESG criteria exclude some investments, investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria.
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1 “Sustainable Reality: Analyzing Risk and Returns of Sustainable Funds,” Morgan Stanley, 2019 (https://www.morganstanley.com/pub/content/dam/msdotcom/ideas/sustainable-investing-offers-financial-performance-lowered-risk/Sustainable_Reality_Analyzing_Risk_and_Returns_of_Sustainable_Funds.pdf).
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