Sustainable international mutual funds and ETFs and foreign funds in particular expand rapidly
The international equity mutual funds segment, comprised of broad-based mutual funds and exchange-traded funds (ETFs), has experienced significant growth . In the last 24 months, international funds expanded from 151 funds/share classes with $15.4 billion in assets under management to 593 funds/share classes and $99.8 billion in assets under management, or almost a seven-fold increase. Just in June, two fund firms, including Aegon and Virtus, launched 2 new funds (7 share classes) while a third, Vanguard, added two share classes to an existing fund. While market movement and net new flows have been a factor, the most significant driver in the two-year increase is the rebranding of existing funds by conventional investment management firms that have adopted sustainable investing strategies, mainly in the form of ESG integration practices, primarily targeted to institutional investors. In the process, the sustainable profile as well as the lineup of the leading firms in this segment and the rank ordering of funds have also changed; and while this segment is comprised of various investment themes or objectives, the largest segment, with $44.5 billion in assets or 44.6% of the segment’s total net assets as of June 2019, is sourced to large cap growth, value and hybrid funds that invest in foreign securities, excluding the US. Otherwise, funds in this segment range from country specific and regional-oriented funds, such as Japan, Europe and Pacific/Asia-oriented stock funds, to thematic funds focusing, for example, on alternative energy, as well as emerging market funds. The recent growth of the international funds segment and the profile of funds that comprise this universe, including their sustainable investing orientation, are described in this research article along with the recent creation of a sustainable foreign fund index which was launched as of June 30, 2019. See Chart 1.