New fund launched to meet changing investor needs.

Old Mutual has launched the first local actively managed environmental, social and governance (ESG) equity fund in South Africa. This follows efforts to expand its existing suite of responsible investments, which comprises the Old Mutual MSCI World ESG Index Feeder Fund and Old Mutual MSCI Emerging Markets ESG Index Feeder Fund, both of which were launched in 2018.

According to Elize Botha, Managing Director of Old Mutual Unit Trusts, the decision to launch the new fund was in response to changing investor needs and evidence of superior returns.

“ESG funds are increasingly shown to deliver sustainable adjusted long-term returns for clients. Businesses that prioritise ESG matters are better equipped to thrive in the long run.” 

Morningstar data shows that amid the pandemic, 24 out of 26 index funds that focus on companies with the highest ESG scores outperformed their closest conventional counterparts.

Fawaz Fakier, Fund Manager of the ESG Equity Fund, says that as a responsible asset manager Old Mutual identified a gap in the market. “Sustainable investing has really taken off in the past five years. We saw this trend abroad and locally with the uptake of our own ESG passive funds launched two years ago. It was this and market intel that confirmed that there was an opportunity for a local, actively managed ESG unit trust,” says Fakier.

The hallmarks of the fund include the portfolio’s significantly lower carbon footprint and higher ESG profile relative to the benchmark (the FTSE/JSE Capped Shareholder Weighted All Share Index).

Launched on May 31, the fund invests in companies that have strong balance sheets, sustainable cash flows, are well priced and score highly on proprietary researched ESG criteria. “ The fund is aimed at investors with a longer-term horizon and who are primarily seeking exposure to a domestic general equity fund with a high ESG focus,” says Fakier.

He says that the fund’s annual investment charge of 1.18%, for retail investors is comparatively low for an actively managed equity fund.  The fund is available in Old Mutual’s suite of tax-free solutions.

According to Botha, ESG investing has grown in popularity and credibility over the past few years, with investors profiting from rewarding companies that look beyond just the bottom line. “This has been most pronounced in the choices of generation z and their millennial parents who think differently about how they spend, save and invest their money,” says Botha.

This is supported by a Morningstar report in March 2020, that reveals that 95% of millennials are interested in sustainable investment. In addition, 90% want their investments tailored to match their values.

This demographic shift is expected to have considerable influence in the near future, with a Morgan Stanley study revealing that US$30 trillion in wealth will transfer from baby boomers to millennials over the next few decades.

According to Botha, “many companies are adapting to the scrutiny that their business practices, and not only their bottom line, are under. Business leaders are increasingly committing to building their sustainability credentials; but they need to step up their efforts to achieve carbon neutrality in order to remain relevant”.

Botha says this is precisely what investors with a longer-term horizon can expect from the Old Mutual ESG Equity Fund.