Morningstar - Q3 2020 - 47
...and a positive value indicates underperformance.
Overall, ESG funds showed better down capture and lower
standard deviation than non-ESG funds.
Underperformance, shaded red in exhibits 2 and
3, denotes a decline greater than the category
benchmark.
0.13
0.30
0.12
0.18
0.13
0.30
EXHIBIT 3
Better Globe Ratings, Better Results We filtered out ESG funds with lower Morningstar Sustainability Ratings. On balance, the
results for the remaining 4- and 5-globe funds were an improvement over the results shown in Exhibit 2.
ESG Funds Down Capture
ESG Funds Standard Deviation
Difference Between ESG Median
and Non-ESG Average
Down Capture Ratio (%)
Average Standard Deviation (%)
Difference Between ESG Average
and Category Average
Number of Funds
1 Year
3 Year
5 Year
1 Year
3 Year
5 Year
1 Year
3 Year
5 Year
1 Year
3 Year
5 Year
Large Blend
27
94.60
98.25
98.87
-5.52
-1.38
-2.12
19.47
15.37
13.80
-0.61
0.12
0.18
Large Growth
11
99.00
95.94
100.04
-7.85
-5.85
-6.02
17.68
14.70
13.47
-0.63
-0.71
-0.62
Foreign Large Blend
11
89.94
92.56
93.81
-8.58
-4.64
0.04
19.59
14.44
14.10
-0.65
-0.44
0.30
World Large Stock
9
84.29
88.81
91.84
-12.82
-8.34
-5.09
18.96
14.33
13.19
-0.61
-0.35
-0.05
Allocation-50% to 70% Equity
6
85.55
97.74
101.73
-24.02
-14.52
-9.08
12.44
9.46
8.84
-1.18
-0.58
-0.14
Mid-Cap Blend
4
85.40
86.53
85.49
-22.14
-20.12
-17.86
21.97
16.41
14.32
-3.32
-2.02
-1.70
Small Blend
3
97.67
93.50
87.60
-7.03
-8.51
-9.97
27.33
20.72
17.52
-0.99
-0.35
-1.09
Mid-Cap Growth
2
93.38
98.00
N/A
-10.13
-5.53
N/A
21.01
17.33
N/A
-0.43
0.13
N/A
World Small/Mid Stock
1
65.69
74.78
N/A
-25.71
-18.49
N/A
21.82
16.03
N/A
-1.84
-1.07
N/A
-
88.39
91.79
94.20
-18.06
-10.90
-9.11
20.03
15.42
N/A
-1.14
N/A
N/A
Category
Average
Note: Data is for funds' oldest share class.
Source: Morningstar Direct. Data as of 03/31/2020.
The standard deviations of ESG funds were also
lower than category averages for all three time
frames ( E X H IB IT 1 ). ESG funds had lower average
standard deviations than the category average
in 14 of the 19 categories for the 12 months ended
March 31, including the four most populated
categories: large blend, large growth, foreign large
blend, and world large stock.
E X H I BIT 2 highlights the results for the nine
categories where four or more funds passed our
ESG screen. The data show the difference between
the median down capture for ESG funds in
each category and the average down capture of
non-ESG funds in that category. We also
show the average standard deviations of the
same group of funds.
Most-Populated ESG Categories
As we noted earlier, however, a number of the
categories had fewer than four ESG funds
that passed our initial screen, such as mid-cap
value and several non-U.S. stock categories. When
we excluded those 10 categories, the results
were still in ESG funds' favor, including lower risk
readings in key portfolio-building-block categories
such as large blend, large growth, mid-cap
blend, and small blend.
Take large-blend funds. When compared
against the Russell 1000 Index, the median ESG
fund experienced 95.7% of the declines in
the benchmark over the one-year period through
March 31, while the average down capture of
non-ESG funds was 100.1%. With down capture of
4.4 percentage points less than the average fund,
ESG funds were better at protecting investors.
The table is color-coded so that green denotes ESG
outperformance.
Funds With Higher Sustainability Ratings
If the improved risk profile were reflective of ESG
factors, and not some other attribute, then
readings should improve when we screen for funds
with better ESG risk ratings by removing
lower-rated funds. And on balance, they did,
especially over the short term.
For EXHIB IT 3 , we filtered out 1-, 2-, and 3-globe
funds on Hale's list of funds with ESG mandates.
(Just because a fund has an ESG mandate
doesn't necessarily mean it carries out that
mandate in practice.) These funds earned Low,
Below Average, and Average Morningstar
Sustainability Ratings, respectively.
When we included only funds with 4 and 5 globes,
these ESG funds, on average, improved their down
capture against the category benchmark in every
morningstar.com/lp/magazine
47
http://www.morningstar.com/lp/magazine
Morningstar - Q3 2020
Table of Contents for the Digital Edition of Morningstar - Q3 2020
Contents
Morningstar - Q3 2020 - CT1
Morningstar - Q3 2020 - CT2
Morningstar - Q3 2020 - Cover1
Morningstar - Q3 2020 - Cover2
Morningstar - Q3 2020 - 1
Morningstar - Q3 2020 - 2
Morningstar - Q3 2020 - Contents
Morningstar - Q3 2020 - 4
Morningstar - Q3 2020 - 5
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