At One Day In July, we focus sustainable investing on the environment, recognizing the urgency of climate change and the tangible nature of the metrics available. We work to cut through the frenzied noise surrounding this growing field, while sticking to our basic principles: simplicity, low fees and personalized attention.
February 16, 2021
We can't blame you if you missed this. When people are busy washing their hands 400 times a day, ordering black market toilet paper from China, and scanning the yard for murder hornets, the evolution of the investment industry is a pretty remote concern.
Fortunately, organizations like Morningstar keep an eye on this stuff for us. Every year around this time, they produce a report1 updating the sustainable funds landscape in the United States. "Sustainable" in this context means ETFs or mutual funds that consider environmental, social and/or corporate governance factors in selecting their investments.
A major reason we launched an environmental investing strategy about a year ago was our belief that growing demand would cause the number of available low-cost sustainable index funds to increase. Another was the belief that investments more insulated from climate change were well-positioned to outperform in the next decade.
So far, so good. The Morningstar report shows that more than 70 new funds were launched in 2020 and that sustainable strategies attracted over $50 billion in new investment dollars. Both easily broke prior records. The inflows more than doubled the previous annual high and represented about one of every four dollars invested in U.S. funds overall during the year. We were happy to see that passive ETFs, our preferred investment vehicle, led the charge in terms of inflows.
Sustainable funds didn't only get bigger. They also performed better than their peers, on average. 75% of sustainable stock funds finished in the top half of their Morningstar peer group in 2020. For the subset of stock funds that have been around longer, the track record over the trailing 3 and 5-year periods has been similarly strong.
This is not to say everything is perfect. Many of the new funds aren't large enough to be viable options for our strategy yet. We also could still use a few more good impact-oriented options on the bond side. And you probably won't be surprised to learn that we think there is more room for fund fees to come down. But after last year, we're choosing to accentuate the positive.
"Climate change is real, and we want to be part of the solution by putting everyone in an electric vehicle." - Mary Barra, CEO of General Motors, which has committed to selling only zer-emission vehicles by 2035.
4,280 - The number of square miles of deforestation that occurred in the Brazilian Amazon in 2020, an increase of almost 10% from 20192.
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