ESG helps drive investors to globally focused funds, finds Calastone

Investors are ‘increasingly shunning regionally focused funds in favor of global equities.’ That is the message from years of Calastone fund flow data.

‘Since 2015, global funds have enjoyed a net inflow of £51.3 bn ($65.4 bn), while all other geographical categories taken together have seen just £909 mn of new capital,’ the firm says.

Even if you exclude perennially ‘unloved’ UK-focused funds – which Calastone notes have suffered the biggest outflows – regionally focused categories have seen inflows of only £16.7 bn since 2015. That comes in at less than a third as much as funds that invest with a global mandate.

The ESG driver

The growth of ESG has ‘been an important driver of the shift to global funds,’ says Calastone, but this does not explain it entirely. ‘[ESG funds] account for four tenths of the inflows to global funds since 2015 (£21.9 bn) and seven tenths since July 2021 (£13.6 bn).’

Calastone says global funds saw net outflows in just nine months since the start of 2015. In comparison, regionally focused funds saw net outflows across 51 months – essentially 50 percent of the time.

While the data shows consistent favor for global funds since 2015, the trend has also been accelerating over the last two years. ‘Since July 2021, global funds have enjoyed inflows of £18.9 bn, while funds with a regional focus have shed £21.1 bn,’ Calastone notes.

Edward Glyn, head of global markets at Calastone, says that while the firm sees ‘short periods when particular regions enjoy a moment in the sun – emerging market funds are enjoying significant inflows just now, for example – the trend for global stocks looks unlikely to change. It also makes sense for retail investors in particular, he adds.

‘There is a clear logic in opting for global funds,’ notes Glyn. ‘Most of the world’s most successful companies operate globally, so where they are listed is immaterial. Global funds mean investors get exposure to these stocks. They also save investors the worry of trying to pick winning regions – retail investors typically lack the time and expertise to stay on top of which parts of the world are on the up and which are on their uppers.’

He adds, however, that while it makes sense that global funds would also offer the most effective diversification, in practice this is not always the case: ‘The huge size of a few US technology companies means global funds that cleave to their benchmarks typically have a very large weighting to a handful of names.’