CHICAGO – It’s hard to predict the path of anything in the financial services industry, but that hasn’t stopped Morningstar from prognosticating.
The company, with nearly $45 billion in managed portfolios, says their research supports continued growth and interest in ESG and impact investing funds, making ESGs the focus of the future for Morningstar.
A panel at the Morningstar conference on Thursday discussed their research and partnership with Sustainalytics, the future of ESG funds and separated fact from fiction on common myths and misconceptions surrounding these funds.
Is There Demand For These Funds?
“People want more than just money,” said Ray Sin, behavioral scientist at Morningstar. But that’s not just Sin’s opinion. His research at Morningstar has focused on asking investors what amount of returns investors would be willing to give up in order to invest sustainably.
Much to the research team’s astonishment, they found that most of the respondents had a moderate to strong interest in investing sustainably, and 50 percent of respondents put sustainability profile over returns in terms of importance.
Jon Hale, head of sustainability research at Morningstar, said, “It was a really strong indicator that a lot of people out there are interested in sustainability and would apparently want to see it in their portfolios.”
Do Investors Have To Sacrifice Performance For ESG?
According to Index Strategist Dan Lefkovitz, the answer to this frequently asked question is a resounding no. Lefkovitz said Morningstar research shows that 73 percent of Morningstar’s ESG indexes outperformed their non-ESG counterparts.
Morningstar is already moving forward with plans to offer more services to advisors and clients that assess and evaluate impact funds. At the conference, Morningstar launched ESG Asset Allocation Portfolios, acting swiftly on the growing demand from investors and advisors for more variety in impact fund offerings and better ways to compare and analyze the data surrounding them.
Paul Arnold, portfolio manager, Morningstar Investment Management was surprised to see that their first ESG account using the new ESG Asset Allocation Portfolios came from Texas, illustrating just how little is known about the demographics of investors who have an interest in investing in ESG funds.
Arnold said, “The goal of these portfolios is to allow investors to achieve their long-term financial goals while incorporating sustainable values into their portfolios.”
Arnold concluded that Morningstar was and is still “seeing broad excitement” from all aspects of the industry around ESGs and impact funds.
AdvisorNews Managing Editor Cassie Miller may be reached at cassie.miller@Adnewsfeedback.com. Cassie has an extensive background in magazine writing, editing and design. Follow her on Twitter @ANCassieM.