Appetite for Article 9 Funds Resilient Amid Market Challenges
October 26, 2022 — London
Flows into Article 9 SFDR-classified products remain positive as sustainable investments suffer outflows
Net new flows into Article 9 funds have remained positive throughout 2022, despite outflows across the wider industry, including from Article 8 funds—a countertrend that could reshape product innovation in Europe in the environmental, social, and governance (ESG) domain, according to the latest issue of The Cerulli Edge―European Monthly Product Trends.
“Managers operating Article 9 funds are encouraged by the stickiness of client money this year and even more so by investors’ willingness to continue to allocate, even during difficult market conditions,” says Fabrizio Zumbo, director, European asset and wealth management research at Cerulli Associates. “We expect that providers will continue to innovate and develop products on this front.”
Sustainable investing has enjoyed significant momentum in Europe in recent years. However, events this year, including a downturn in stock markets and commodity price inflation, have created short-term headwinds for asset managers operating ESG-based strategies. “Asset managers will need to allay client concerns, presenting the long-term benefits of a sustainable investment approach, as they are challenged by underperformance this year and heightened regulatory scrutiny,” adds Zumbo.
Introduction of the EU’s Sustainable Finance Disclosure Regulation (SFDR) in March 2021 prompted managers to reshape their product offerings and categorize funds under its classification requirements. However, Cerulli research shows that many asset managers are still seeking clarity around SFDR to avoid running the risk of mislabelling funds and potential sanctions. In response, Germany’s financial regulator, BaFin, recently published guidance providing clarity on certain aspects of the regulation, including exemptions and alignment to the EU’s Taxonomy Regulation.
Article 8 funds, which have greater total assets than Article 9 funds, recorded net outflows of €120.6 billion (US$118.8 billion) in the first nine months of 2022, similar to the €122.2 billion redeemed by European investors from other funds, according to Morningstar data.1 In contrast, Article 9 funds gathered €33.7 billion during the same period, having registered positive sales figures in every month.
“In a year characterized by high volatility, fund flows into Article 9 funds have also been surprisingly stable, ranging from a monthly low of €1.4 billion to a monthly high €7.5 billion in 2022,” notes Zumbo.
1 Figures are based on Morningstar’s universe of open-end funds and exchange-traded funds, domiciled in Europe, and EU SFDR fund types as of October 12, 2022. Figures exclude fund-of-funds and non-surviving funds.
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