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Sustainably Minded Indexers Get More Choices

Recent trends show that passive sustainable funds are growing significantly faster than active ones.

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Sustainable investing, which seeks to stay aligned with environmental, social, and governance (ESG) principles, has become increasingly mainstream in recent years, as noted by my colleague Jon Hale. As a result, an ever-increasing number and variety of ESG-oriented mutual funds are now available to investors. At the same time, lots of money has flowed into passively managed vehicles, such as exchange-traded funds, exchange-traded notes, and open-end index funds, at the expense of actively managed funds. In the first five months of 2017, actively managed funds saw $6 billion in net outflows, while passive funds had $145 billion of net inflows.

At the intersection of these two trends are the many sustainable ETFs, ETNs, and index funds that have cropped up in recent years, giving ESG investors many more passive options than they used to have. Last year, both Jon Hale and Ben Johnson surveyed the expanding world of sustainable ETFs, in "How ETFs are Incorporating Sustainability" and "ESG + ETF = BFFs?". Since then, money has continued to flow into these funds, and fund companies have launched dozens of new sustainable mutual funds and ETFs just in the past couple of years. It's worth taking a closer look at recent trends in this area, including some of the newest funds that have been attracting assets.

David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.