Global passive equity ESG investment funds are cheaper and perform better than their non-ESG counterparts, suggesting greater value for money, according to ClearGlass Research.

The firm’s third analyst report focusing on the global passive equity universe provides the investment industry with deal-specific fee data collected via its Cost Transparency Initiative (CTI) framework.

The research arm of ClearGlass Analytics has developed a proprietary database for global passive equity funds, which served as the basis for the report.

The report found that there are economies of scale in global passive equities but this tapers off at higher assets under management levels, suggesting investors should negotiate harder as they increase from very small allocations to small to medium-sized allocations but not beyond this.

Chris Sier, research director at ClearGlass Research, said: “The report started with the objective of investigating the entire universe of global passive equity findings, but its strongest finding is focused on a niche segment on the market, namely that ESG-focused passive equity funds provide better value for money than non-ESG counterparts – this is true across both costs and performance.”

The research also found that there is no relationship between performance and charges. Whether analysing the entire sample or dividing the sample into groups based on methodology, there is no correlation, positive or negative, between performance and charges. Given there is no performance benefit from paying higher fees, investors should aim for the lowest cost option, ClearGlass recommended.

ESG passive global equities funds, the report found, outperform traditional core funds. Some investors are concerned that they need to sacrifice a portion of returns to improve sustainability. However, ClearGlass findings suggest the opposite is true.

Charges are stable for passive global equities funds except for ESG funds, however, charges are falling rapidly for ESG funds, suggesting better overall value for money in comparison with non-ESG funds.

Sier said the report suggests that “the positive trends across costs are likely to continue in the ESG passive equity space, with a clear trend of fees decreasing at a much more pronounced rate than any other segment of the passive equities market”.

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Venilia is editor of IPE.com. She joined the IPE editorial team in November 2019 after freelancing for FT Adviser and LAPF Investments, while also being a publisher for market intelligence company Clear Path Analysis. She started her career at Euromoney Institutional Investor where for 16 years was reporter and editor covering the asset management industry globally.View full Profile

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