Sustainable funds still in demand

“Long term consistent returns would be the key measure (when investing into ESG funds),’’ said BIMB Investment chief executive officer Najmuddin Mohd Lutfi.

A new fund with the sustainable tag was launched by Nomura Asset Management Malaysia last week.

It may be their first Global Sustainable Equity Fund for Malaysia, but there are nearly two dozen of such funds by other issuers available in the marketplace.

There has been an increase in fund issuance related to sustainability since the Covid-19 pandemic and in June, MIDF Amanah Asset Management launched its first ESG (environment, social and governance) fund.

Investors globally are increasingly paying more attention to sustainable funds but is there real value in returns?

“Long term consistent returns would be the key measure (when investing into ESG funds),’’ said BIMB Investment chief executive officer Najmuddin Mohd Lutfi.

He said like any investment approach, sustainable investing will not always outperform over short-term periods. But they should be able to weather market volatility better than non-ESG peers in a given long term investment period.

He said ESG investing is when you invest in companies based on how they perform on ESG criteria, not just profits.

MIDF’s ESG Mustadamah Fund will invest into a portfolio of syariah-compliant Malaysian stocks to achieve medium to long term sustainable capital appreciation, targeting 6% annual returns.

In the case of Nomura, it will feed its first Malaysian fund into the Nomura Funds Ireland – Global Sustainable Equity Fund – for long term capital growth. Nomura Funds Ireland gets its returns, among others, by investing into shares of global companies that are ESG inclined.

For local distribution, Nomura partnered Sun Life Malaysia Assurance Bhd. The minimum initial investment is RM1,000 and subscription is available online.

BIMB Investment itself has six sustainable investing funds. Of which two are global funds and one each of Asia Pacific Fund, Malaysia-based Fund, Sukuk Fund, and Wakaf-featured Fund.

“Locally, there has been a growing trend of new ESG funds in the past two years,’’ adds Najmuddin.

Issuers these days are also focusing on themes such as technology, low carbon economy funds, clean energy funds and others to generate more interest in ESG funds.

Morningstar, an investment research firm, recently said that funds focused on ESG related issues saw its combined assets climb to US$2.3 trillion (RM9.71 trillion) for the fifth consecutive quarter of growth, up 12% from the end of March.

Even Moody’s Investors Service said sustainability linked bonds achieved a new quarterly record of US$31bil (RM130.82bil) in the second quarter of this year.

This was more than three times higher than the US$9bil (RM38bil) issued in the first quarter.

Moody’s believes that overall sustainable bond volumes (globally) could approach US$1 trillion (RM4.22 trillion) in annual issuance this year.

If you plan to invest in sustainable funds via unit trust, it is best to read the prospectus issued by the issuer to find out the fund allocation into ESG sectors and companies.

Pick the fund that best suits your risk appetite and the desired returns and be mindful of transaction fees imposed.

Najmuddin said most investments are via unit trust for retail investors.

Depending on the type of fund, the minimum initial investment is between RM500 to RM1,000 with an additional minimum investment ranging from RM100 to RM500.

“Alternatively, they can also invest in our funds through our Robo-Intelligence app called Best Invest, with as low as RM10. The app can be downloaded via Google Play Store or Apple,’’ he adds.

While many are bullish about ESG funds, Kimberly Law, a licenced financial planner at IPPFA believes sustainable funds are still new and risky especially for first time investors.

“It is hard to evaluate the funds as there is not enough track record of the fund management,’’ she said.

Najmuddin adds that companies that prioritise ESG factors have shown to be more resilient to shocks and could give better returns to investors in the long run.

“This tilts the portfolio towards companies that are better equipped to manage ESG issues and therefore less likely to face financial risks such as fines, lawsuits, and reputational damage,’’ he adds.

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