Cost-conscious investors selling off highly rated ESG funds

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According to Sjuve’s research, persons who invest in funds with higher ESG ratings are more sensitive to increases in fees than those who do the opposite.

He investigated capital flow information for more than 16,000 mutual funds on Morningstar, where funds are graded based on their ESG performance on a scale of one to five globes.

The report found that for five-globe funds, a one-standard deviation rise in fees resulted in a net outflow of 43 basis points, compared to only 11 basis points for one-globe funds.

The price explosion of ESG assets in recent years may have caused investors to become more cautious about the likelihood of future returns, according to Sjuve, who suggested this as one explanation for the cost sensitivity surrounding ESG funds.

“To maximize the probability of seeing their capital grow, they have to be more conscious about the fees they are charged,” he said. 

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