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Friday Funds: Sustainable bond funds provide higher risk-adjusted returns than traditional peers

The latest developments in ESG-related funds: Generation IM launches $1.7bn sustainable solutions fund; Pictet, Robeco launch sustainable bond funds.

Sustainable UCITS bond funds have consistently recorded higher risk-adjusted returns than traditional funds over the past five years, according to a new report from EFAMA. While traditional bond funds have tended to provide higher annual returns than their sustainable equivalents – with a notable exception in 2020, which EFAMA speculates was due to sustainable funds’ lower exposure to the energy sector – sustainable funds have a higher Sharpe ratio, which adjusts a portfolio’s performance according to the excess risk taken on by the investor. In this area, sustainable funds outperformed traditional across one, three and five years, with the difference especially pronounced over the past year. Sustainable funds also charge lower fees, with the average fee in 2021 standing at 0.59 percent for sustainable versus 0.76 percent for traditional.

Generation Investment Management has launched a $1.7 billion sustainable solutions fund. The Sustainable Solutions Fund IV – GIM’s largest growth equity fund yet – will invest between $50 million and $150 million as a minority investor in high-growth companies across the themes of planetary health, people health and financial inclusion.

Robeco has launched a new fund investing in sustainable Asian bonds. The fund invests in hard-currency corporate and sovereign bonds across Asia, with exposure primarily in companies that contribute to the UN SDGs. It will target a yield of 4 percent to 6 percent per year, aiming to outperform the JPMorgan Asia Credit Index.

Pictet Asset Management has launched a new climate-focused sovereign bond fund. The fund invests in countries “whose carbon emissions are falling at the steepest rate in absolute terms and relative to the size of their economy”. Pictet said the fund’s investment approach “may mean leaving out countries which are the mainstay of traditional bond indices, offering further diversification benefits for investors”.

Nuveen Real Estate has launched a new impact investing operation that will seek to raise up to $15 billion for strategies to address social and environmental challenges in the US, Europe and APAC. Nuveen said the operation would seek to “improve communities by providing supportive services, enhancing residents’ quality of life and financial outcomes, and ensuring affordable, sustainable and climate-safe housing”, while contributing to the goal of the group’s real assets wing to hit net zero by 2040.