Outflows Continue for U.S. Sustainable Funds in Q1 2023, While Active Funds Show Signs of Recovery

In the first quarter of 2023, investors withdrew $5.2 billion from U.S. sustainable funds, although the pace of withdrawals moderated compared to the previous quarter. This marked the third consecutive quarter of outflows, totaling nearly $12.4 billion over the past year. Global macroeconomic pressures, including an ongoing energy crisis and concerns of a recession, contributed to this retreat. In contrast, the overall U.S. fund universe saw net inflows of $17 billion during the same period, albeit lower than its typical quarterly haul.

Notably, actively managed sustainable funds broke a three-quarter streak of outflows and experienced modest inflows of $91 million. However, passive funds faced significant outflows of nearly $6.1 billion, disrupting the trend of supporting U.S. sustainable funds. The iShares ESG Aware MSCI USA ETF (ESGU), which was once a popular fund and the largest U.S. sustainable fund in 2022, lost over $5 billion during the week of March 20, 2023. This coincided with a change in BlackRock’s flagship target allocation ETF model portfolios, where the allocation to ESGU was reduced and replaced largely by iShares MSCI USA Quality Factor ETF (QUAL).

GMO Resource Transition GMOYX, launched on February 15, 2023, quickly gained traction and ranked third in terms of flows during the first quarter. This fund focuses on investing in natural-resources companies that are expected to benefit from the clean energy transition, excluding traditional oil and gas companies. BlackRock and Vanguard remained dominant in the top flows table, with four and two funds respectively, while the iShares ESG U.S. Aggregate Bond ETF (EAGG) consistently ranked among the top 10 funds for the past three quarters.

Below are listed the top five ESG ETFs by net flow:

  1. iShares ESG Aware MSCI EM ETF (ESGE): Q1 net flow: $477 million
  2. BlackRock Sustainable Advantage Large Cap Core (BIRIX): Q1 net flow: $475 million
  3. GMO Resource Transition (GMOYX): Q1 net flow: $460 million
  4. iShares ESG U.S. Aggregate Bond ETF (EAGG): Q1 net flow: $419 million
  5. Calvert Equity (CSIEX): Q1 net flow: $419 million
Heavily Traded ETFs
SPDR S&P 500 - SPY
Invesco QQQ
Vanguard S&P 500 - VOO
Vanguard Total Market - VTI
Energy Select Sector - XLE

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