Morningstar research: Article 8 funds suffer outflows for first time

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Morningstar research: Article 8 funds suffer outflows for first time

Data from Morningstar has shown that in the first quarter of 2022, Article 8 funds had outflows of €3.3bn, the first time such classified funds have seen more money leaving than being invested.

From March 2021, Sustainable Finance Disclosure Regulation (SFDR) introduced classifications to funds such as Article 8, which defines funds that promotes environmental or social characteristics. While Article 8 funds show outflows so far in 2022, Article 9 funds, which have sustainable investment or carbon emissions as a core objective, registered inflows of €8.6bn.

Collectively, Article 8 and Article 9 fund assets grew by 8.5% in the first quarter of 2022 to €4.2trn. The two fund groups also accounted for a bigger share of overall EU fund assets showing 45.6% at the end of March 2022, from 42.4% three months earlier, in terms of assets. Amundi, JP Morgan and Nordea ranked as the top three providers of Article 8 funds, while Pictet, BNP Paribas and BlackRock were the largest providers of Article 9 funds.

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Article 8 funds started experiencing outflows in February (€2.2bn), which deepened in March at €13.7bn. Article 6 funds, which do not incorporate sustainability into the investment process, recorded smaller outflows in February (€1.7bn) and barely positive net flows of €700m in March.

Hortense Bioy, global director of sustainability research at Morningstar, said: "After strong inflows in 2021, it's the so-called "light green" (Article 8) funds that suffered the most from the challenging market environment in Q1."

"Despite a slump in product development during the quarter, asset managers continued to expand the range of Article 8 and Article 9 options available to investors in terms of asset class, market exposure, investment style, and theme."

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Article 8 and Article 9 funds have been predicted by Morningstar to reach 50% of overall EU fund assets by mid-2022 as managers continue to upgrade strategies and launch new products that meet the articles' requirements.