There has been a drop in the amount of capital flowing into ESG-badged funds within the retail sector, according to latest figures from Hargreaves Lansdown.
HL’s figures for January show that net flows into ESG funds on its platform were down 115 per cent, year on year. The monthly figures show that January was the first month of negative net flows into ESG funds since March 2020, the start of the UK-wide lockdowns in response to the Covid pandemic.
These figures come on the back of strong growth in recent years. Figures from Hargreaves Lansdown, one of the biggest retail platforms in the UK, show that in January 2021, year-on-year inflows into ESG funds were up 115 per cent, while in January 2020 there was 3082 per cent increase in capital flows into this sector.
Hargreaves Lansdown’s data shows that the top ESG funds bought last month included Aegon Ethical Equity, BNY Mellon Sustainable Real Return, Legal & General Future World ESG Developed Index, Troy Trojan Ethical and Vanguard SRI European Stock.
Hargreaves Lansdown head of investment analysis and research Emma Wall says: “January saw significant market volatility as fears of a Fed rate rise cooled the appeal of growth stocks. The Nasdaq index of US tech stocks recorded its worst month since the pandemic slump in March 2020, as investors took gains and instead sought out stocks such as financials, which tend to benefit from higher interest rates. ESG funds were caught up in the style rotation as the appeal of growth-orientated names waned.
“However, before sounding the death knell for responsible investing it is important to consider the context.
“Last month was also a choppy month for fund flows across all sectors, as investors sought to make sense of the higher-rate outlook. The increased popularity of responsible investment funds will be a structural shift, rather than a faddy trend, and while there may be months where flows slow, assets under management are likely to grow steadily over time. The Investment Association fund flows data for 2021 supports this, with retail investors allocating more to responsible funds through the year.”