Canadian sustainable fixed income funds have made a robust start to the year, with the Morningstar Canada Sustainable Fund Landscape for Q1 2024 reporting an impressive $193.3m in inflows.
This marks a significant recovery from the first quarterly outflows since early 2019 experienced in Q4 2023. Canadian investors have renewed their interest in sustainable investment options, driving total assets in this sector to exceed $51bn, reaching new all-time highs, according to Morningstar’s latest report.
Within the sustainable investment sphere, fixed income funds have consistently been the preferred choice among Canadian investors. These funds have enjoyed their fifth consecutive quarter of inflows, amassing $407.6m, outperforming even the equity funds, which represent the largest asset class within sustainable funds in Canada. This trend underscores the growing investor confidence in fixed income as a stable and promising category within the sustainable finance landscape.
The trend towards active management in sustainable funds remains strong, with six new funds launched in the first quarter of 2024, all adopting this approach. Notably, there were no new passive sustainable funds introduced this quarter. The new additions were distributed among several asset managers, including NEI Investments, OneVest, Manzil, and Mackenzie, each introducing one new fund, while Educators introduced two. These funds span various asset classes, offering investors diverse options for sustainable investing.
The performance of sustainable funds was varied in Q1 2024. About 58% of these funds fell into the bottom half of their peer groups. However, sustainable allocation funds, particularly in the Global Neutral Balanced category, showed stronger performance, with 26% ranking in the top quartile. In contrast, the Canadian sustainable balanced funds struggled, with 67% falling into the bottom quartile. The performance was similarly mixed in sustainable equity and fixed-income funds, where international funds generally outperformed those focused on domestic markets. Over the year, fixed-income funds showed a commendable performance with 64% ranking in the top half, whereas only 42% of equity funds achieved a similar ranking.
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