Q1 US sustainable fund sector sales wounded by one ETF

Investors pulled $5.2bn from US sustainable mutual funds and ETFs in the first quarter — but if it were not for one iShares ETF, they would have been in net inflows, according to a Morningstar report.

The $14.2bn iShares ESG Aware MSCI USA ETF (ESGU) leaked $6.5bn during the quarter, Morningstar data shows. In March, investors withdrew more than $5.4bn — more than one-third of the fund’s assets. Most of those net redemptions happened on March 20, when the fund recorded $3.9bn in redemptions, as reported. The redemptions spike could have been because BlackRock rebalanced its model portfolios, Nate Geraci, president of the ETF Store, told Ignites at the time.

Also on March 20, the $28.1bn iShares MSCI USA Quality Factor ETF recorded $4.8bn in net inflows.

BlackRock offers more than 150 model portfolios, its website shows. ESGU is in more than 20 BlackRock models, according to Morningstar Direct.

This article was previously published by Ignites, a title owned by the FT Group.

Sustainable funds were not immune to market downturns in the short run, but BlackRock expected “structural shifts” to benefit sustainable strategies over the long term, the company said.

BlackRock’s other 30 sustainable mutual funds and ETFs recorded a combined $6.6bn in net outflows during the quarter, according to Morningstar’s database. They had $51.4bn in net assets as of March 31.

BlackRock was also home to the best-selling sustainable fund of the quarter, the $4.4bn iShares ESG Aware MSCI EM ETF (ESGE), which gathered $477mn during the three-month period, according to Morningstar’s database.

Across firms, passive sustainable mutual funds and ETFs bled nearly $6.1bn during the first three months of 2023, Morningstar’s data shows. If not for the ESGU, passive funds would have ended the quarter with net inflows.

Actively managed sustainable funds, meanwhile, bounced back into positives sales after recording net outflows for three consecutive quarters, the report says. In all, they added $91mn during the three-month period, the data shows.

Latest news on ETFs

Visit the ETF Hub to find out more and to explore our in-depth data and comparison tools helping you to understand everything from performance to ESG ratings

The funds’ muted inflows may be due to global macroeconomic pressures, including the ongoing energy crisis and anxiety around the possibility of a recession, Morningstar’s analysis suggests.

Sustainable bond funds collected roughly $500mn during the quarter, according to Morningstar. Most of the inflows went into two BlackRock funds. The $2.7bn iShares ESG Aware US Aggregate Bond ETF (EAGG), which added $420mn between January 1 and March 31, and the $989mn iShares ESG USD Corporate Bond ETF (SUSC), which collected $159mn. Sustainable equity funds, meanwhile, bled $5.4bn during the period.

More broadly, mutual funds and ETFs added more than $17bn in net inflows during the quarter, according to Morningstar. Mutual funds leaked a collective $60.8bn during the quarter, and ETFs netted $78.1bn, the database shows.