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Visualizing the Top Investments Used by Advisors

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Visualizing the Top Investments Used by Advisors

Visualizing the Top Investments Used by Advisors

The Top Investments Used by Advisors

Today, financial advisors are re-evaluating how they build client portfolios as the economic environment evolves.

Following a decade of historically low interest rates, the U.S. economy is now characterized by higher interest rates, driven by inflationary pressures. This has been met with stronger bond returns and a more cautious view on stocks as companies face steeper borrowing costs.

This graphic shows the top investments used by advisors, based on a 2023 Journal of Financial Planning survey.

Top Investments in 2023

Below, we show the most common types of investments advisors used or recommended to their clients this year:

Investment Type20232019
Exchange-Traded Funds (ETFs)90%88%
Cash and Equivalents76%80%
Mutual Funds*64%70%
Individual Stocks51%54%
Individual Bonds47%42%
ESG Funds35%26%
Separately Managed Accounts33%26%
Fixed Annuities31%23%
Variable Annuities30%26%
Mutual Fund Wrap Programs27%32%
Fixed Permanent
Life Insurance Products
26%24%
Private Equity Funds23%12%
Variable Permanent
Life Insurance
23%14%
Indexed Annuities22%15%
Structured Products21%11%
Other Alternative Investments17%13%
Individually Traded REITs17%20%
Non-Traded REITs17%13%
Options12%9%
Hedge Funds11%8%
Precious Metals8%5%
Other4%4%
Cryptocurrencies3%0%

*Non-wrap. Numbers have been rounded.

As the above table shows, 90% of advisors use ETFs, and almost half reported they plan to increase their usage in the 12 months ahead.

Cash and equivalents, such as money market funds, were also widely used. Yet since 2019, use by advisors declined by four percentage points.

Money market funds saw a record $5.9 trillion in assets under management as of December, averaging returns of about 4.5%. Meanwhile, the S&P 500 has returned roughly 24% year-to-date and investment bonds have returned over 5%.

The use of private equity funds, which invest in privately-held companies, saw the highest increase across investment types, rising 11 percentage points as some advisors looked to alternative investments.

On the other hand, the sharpest decline was across mutual funds, falling six percentage points. Over a quarter of respondents say that they plan to decrease utilizing them in the next year.

Interestingly, 3% of advisors use cryptocurrencies with their clients. To date, Bitcoin has returned over 164%.

Advisor Views on the 60/40 Portfolio

Is the 60/40 portfolio dead?

After a rocky year in 2022, the time-honored 60% stock and 40% bond portfolio has returned 13% to date as of December. When surveyed, more advisors were confident than doubtful that it could offer similar returns compared to history.

Confidence That a 60/40 Portfolio Can Provide
Similar Returns as it Has Historically
Percent of Respondents
Very Confident16%
Confident28%
Somewhat Confident27%
Neutral7%
Somewhat Doubtful14%
Doubtful4%
Very Doubtful3%

Percentages may not equal 100 due to rounding.

In fact, JP Morgan projects that a 60/40 portfolio will outperform cash by 4.1 percentage points on an annualized basis, and outpace inflation by 4.5 percentage points over the next decade.

According to their estimates, $100 in cash is forecast to grow to $133 over 10 years, while a 60/40 portfolio is projected to be worth $197.

Although the high interest rate climate has increased returns on cash, it misses out on the value of compounding offered by other types of investments over a longer horizon.

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Mapped: GDP Growth Forecasts by Country in 2024

Will global GDP growth continue to be resilient in 2024? This graphic shows the economic outlook for 191 economies around the world.

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This map shows GDP growth projections in 2024.

Mapped: GDP Growth Forecasts by Country in 2024

Resilient GDP growth and falling inflation are spurring a brighter outlook for 2024, although cautions remain across global economies.

While investors are hopeful that U.S. rate cuts could happen as early as May, the Fed has signaled that it wonโ€™t โ€œdeclare victoryโ€ too soon. As countries around the world maneuver a complex landscape, they are faced with a scope of risks that include inflationary spikes, rising debt loads, and dwindling consumer savings.

This graphic shows global GDP growth projections in 2024, based on the International Monetary Fund (IMF) October 2023 Outlook and January 2024 update.

Global GDP Growth Outlook 2024

In 2024, real GDP growth is forecast to increase 3.1%, a slight rise from Octoberโ€™s outlook.

While positive growth is projected across all regions, it varies widely due to many factors spanning from the effects of higher borrowing costs to low consumer sentiment. Here are forecasts across 191 countries worldwide:

Country2024 Real GDP % Change (Projected)2023 Real GDP % Change (Estimate)
๐Ÿ‡ฆ๐Ÿ‡ฑ Albania3.3%3.6%
๐Ÿ‡ฉ๐Ÿ‡ฟ Algeria3.1%3.8%
๐Ÿ‡ฆ๐Ÿ‡ฉ Andorra1.5%2.1%
๐Ÿ‡ฆ๐Ÿ‡ด Angola3.3%1.3%
๐Ÿ‡ฆ๐Ÿ‡ฌ Antigua and Barbuda5.4%5.6%
๐Ÿ‡ฆ๐Ÿ‡ท Argentina2.8%-2.5%
๐Ÿ‡ฆ๐Ÿ‡ฒ Armenia5.0%7.0%
๐Ÿ‡ฆ๐Ÿ‡ผ Aruba1.2%2.3%
๐Ÿ‡ฆ๐Ÿ‡บ Australia1.2%1.8%
๐Ÿ‡ฆ๐Ÿ‡น Austria0.8%0.1%
๐Ÿ‡ฆ๐Ÿ‡ฟ Azerbaijan2.5%2.5%
๐Ÿ‡ง๐Ÿ‡ธ The Bahamas1.8%2.7%
๐Ÿ‡ง๐Ÿ‡ญ Bahrain3.6%6.0%
๐Ÿ‡ง๐Ÿ‡ฉ Bangladesh6.0%4.5%
๐Ÿ‡ง๐Ÿ‡ง Barbados3.9%1.6%
๐Ÿ‡ง๐Ÿ‡พ Belarus1.3%1.0%
๐Ÿ‡ง๐Ÿ‡ช Belgium0.9%4.0%
๐Ÿ‡ง๐Ÿ‡ฟ Belize3.0%5.5%
๐Ÿ‡ง๐Ÿ‡ฏ Benin6.3%5.3%
๐Ÿ‡ง๐Ÿ‡น Bhutan3.0%1.8%
๐Ÿ‡ง๐Ÿ‡ด Bolivia1.8%2.0%
๐Ÿ‡ง๐Ÿ‡ฆ Bosnia and Herzegovina3.0%3.8%
๐Ÿ‡ง๐Ÿ‡ผ Botswana4.1%3.1%
๐Ÿ‡ง๐Ÿ‡ท Brazil*1.7%-0.8%
๐Ÿ‡ง๐Ÿ‡ณ Brunei Darussalam3.5%1.7%
๐Ÿ‡ง๐Ÿ‡ฌ Bulgaria3.2%4.4%
๐Ÿ‡ง๐Ÿ‡ซ Burkina Faso6.4%3.3%
๐Ÿ‡ง๐Ÿ‡ฎ Burundi6.0%4.4%
๐Ÿ‡จ๐Ÿ‡ป Cabo Verde4.5%5.6%
๐Ÿ‡ฐ๐Ÿ‡ญ Cambodia6.1%4.0%
๐Ÿ‡จ๐Ÿ‡ฒ Cameroon4.2%1.3%
๐Ÿ‡จ๐Ÿ‡ฆ Canada*1.4%1.0%
๐Ÿ‡จ๐Ÿ‡ซ Central African Republic2.5%4.0%
๐Ÿ‡น๐Ÿ‡ฉ Chad3.7%-0.5%
๐Ÿ‡จ๐Ÿ‡ฑ Chile1.6%5.0%
๐Ÿ‡จ๐Ÿ‡ณ China*4.6%1.4%
๐Ÿ‡จ๐Ÿ‡ด Colombia2.0%3.0%
๐Ÿ‡ฐ๐Ÿ‡ฒ Comoros3.5%4.4%
๐Ÿ‡จ๐Ÿ‡ฉ Democratic Republic of the Congo4.7%2.7%
๐Ÿ‡จ๐Ÿ‡ฌ Republic of Congo4.4%6.2%
๐Ÿ‡จ๐Ÿ‡ท Costa Rica3.2%2.2%
๐Ÿ‡จ๐Ÿ‡ฎ Cรดte d'Ivoire6.6%0.2%
๐Ÿ‡ญ๐Ÿ‡ท Croatia2.6%6.7%
๐Ÿ‡จ๐Ÿ‡พ Cyprus2.7%1.7%
๐Ÿ‡จ๐Ÿ‡ฟ Czech Republic2.3%5.0%
๐Ÿ‡ฉ๐Ÿ‡ฐ Denmark1.4%4.6%
๐Ÿ‡ฉ๐Ÿ‡ฏ Djibouti6.0%3.0%
๐Ÿ‡ฉ๐Ÿ‡ฒ Dominica4.6%1.4%
๐Ÿ‡ฉ๐Ÿ‡ด Dominican Republic5.2%4.2%
๐Ÿ‡ช๐Ÿ‡จ Ecuador1.8%2.2%
๐Ÿ‡ช๐Ÿ‡ฌ Egypt3.6%-6.2%
๐Ÿ‡ธ๐Ÿ‡ป El Salvador1.9%-2.3%
๐Ÿ‡ฌ๐Ÿ‡ถ Equatorial Guinea-5.5%3.1%
๐Ÿ‡ช๐Ÿ‡ช Estonia2.4%6.1%
๐Ÿ‡ธ๐Ÿ‡ฟ Eswatini3.3%7.5%
๐Ÿ‡ช๐Ÿ‡น Ethiopia6.2%-0.1%
๐Ÿ‡ซ๐Ÿ‡ฏ Fiji3.9%1.0%
๐Ÿ‡ซ๐Ÿ‡ฎ Finland1.0%2.8%
๐Ÿ‡ซ๐Ÿ‡ท France*1.0%6.2%
๐Ÿ‡ฌ๐Ÿ‡ฆ Gabon2.6%-0.5%
๐Ÿ‡ฌ๐Ÿ‡ฒ The Gambia6.2%1.2%
๐Ÿ‡ฌ๐Ÿ‡ช Georgia4.8%2.5%
๐Ÿ‡ฉ๐Ÿ‡ช Germany*0.5%3.9%
๐Ÿ‡ฌ๐Ÿ‡ญ Ghana2.7%3.4%
๐Ÿ‡ฌ๐Ÿ‡ท Greece2.0%5.9%
๐Ÿ‡ฌ๐Ÿ‡ฉ Grenada3.8%4.5%
๐Ÿ‡ฌ๐Ÿ‡น Guatemala3.5%38.4%
๐Ÿ‡ฌ๐Ÿ‡ณ Guinea5.6%-1.5%
๐Ÿ‡ฌ๐Ÿ‡ผ Guinea-Bissau5.0%2.9%
๐Ÿ‡ฌ๐Ÿ‡พ Guyana26.6%4.4%
๐Ÿ‡ญ๐Ÿ‡น Haiti1.4%-0.3%
๐Ÿ‡ญ๐Ÿ‡ณ Honduras3.2%3.3%
๐Ÿ‡ญ๐Ÿ‡ฐ Hong Kong SAR2.9%6.3%
๐Ÿ‡ญ๐Ÿ‡บ Hungary3.1%5.0%
๐Ÿ‡ฎ๐Ÿ‡ธ Iceland1.7%-2.7%
๐Ÿ‡ฎ๐Ÿ‡ณ India*6.5%2.0%
๐Ÿ‡ฎ๐Ÿ‡ฉ Indonesia5.0%3.0%
๐Ÿ‡ฎ๐Ÿ‡ท Iran2.5%3.1%
๐Ÿ‡ฎ๐Ÿ‡ถ Iraq2.9%0.7%
๐Ÿ‡ฎ๐Ÿ‡ช Ireland3.3%2.0%
๐Ÿ‡ฎ๐Ÿ‡ฑ Israel3.0%2.0%
๐Ÿ‡ฎ๐Ÿ‡น Italy*0.7%2.6%
๐Ÿ‡ฏ๐Ÿ‡ฒ Jamaica1.8%4.6%
๐Ÿ‡ฏ๐Ÿ‡ต Japan*0.9%5.0%
๐Ÿ‡ฏ๐Ÿ‡ด Jordan2.7%2.6%
๐Ÿ‡ฐ๐Ÿ‡ฟ Kazakhstan4.2%1.4%
๐Ÿ‡ฐ๐Ÿ‡ช Kenya5.3%3.8%
๐Ÿ‡ฐ๐Ÿ‡ฎ Kiribati2.4%-0.6%
๐Ÿ‡ฐ๐Ÿ‡ท Korea2.2%3.4%
๐Ÿ‡ฝ๐Ÿ‡ฐ Kosovo4.0%4.0%
๐Ÿ‡ฐ๐Ÿ‡ผ Kuwait3.6%0.5%
๐Ÿ‡ฐ๐Ÿ‡ฌ Kyrgyz Republic4.3%2.1%
๐Ÿ‡ฑ๐Ÿ‡ฆ Lao P.D.R.4.0%4.6%
๐Ÿ‡ฑ๐Ÿ‡ป Latvia2.6%12.5%
๐Ÿ‡ฑ๐Ÿ‡ธ Lesotho2.3%-0.2%
๐Ÿ‡ฑ๐Ÿ‡ท Liberia5.3%-0.4%
๐Ÿ‡ฑ๐Ÿ‡พ Libya7.5%74.4%
๐Ÿ‡ฑ๐Ÿ‡น Lithuania2.7%4.0%
๐Ÿ‡ฑ๐Ÿ‡บ Luxembourg1.5%1.7%
๐Ÿ‡ฒ๐Ÿ‡ด Macao SAR27.2%4.0%
๐Ÿ‡ฒ๐Ÿ‡ฌ Madagascar4.8%8.1%
๐Ÿ‡ฒ๐Ÿ‡ผ Malawi3.3%4.5%
๐Ÿ‡ฒ๐Ÿ‡พ Malaysia4.3%3.8%
๐Ÿ‡ฒ๐Ÿ‡ป Maldives5.0%3.0%
๐Ÿ‡ฒ๐Ÿ‡ฑ Mali4.8%4.5%
๐Ÿ‡ฒ๐Ÿ‡น Malta3.3%5.1%
๐Ÿ‡ฒ๐Ÿ‡ญ Marshall Islands3.0%3.2%
๐Ÿ‡ฒ๐Ÿ‡ท Mauritania5.3%2.6%
๐Ÿ‡ฒ๐Ÿ‡บ Mauritius3.8%2.0%
๐Ÿ‡ฒ๐Ÿ‡ฝ Mexico*2.7%5.5%
๐Ÿ‡ซ๐Ÿ‡ฒ Micronesia3.1%4.5%
๐Ÿ‡ฒ๐Ÿ‡ฉ Moldova4.3%2.4%
๐Ÿ‡ฒ๐Ÿ‡ณ Mongolia4.5%7.0%
๐Ÿ‡ฒ๐Ÿ‡ช Montenegro3.7%2.6%
๐Ÿ‡ฒ๐Ÿ‡ฆ Morocco3.6%2.8%
๐Ÿ‡ฒ๐Ÿ‡ฟ Mozambique5.0%0.5%
๐Ÿ‡ฒ๐Ÿ‡ฒ Myanmar2.6%0.8%
๐Ÿ‡ณ๐Ÿ‡ฆ Namibia2.7%0.6%
๐Ÿ‡ณ๐Ÿ‡ท Nauru1.3%1.1%
๐Ÿ‡ณ๐Ÿ‡ต Nepal5.0%3.0%
๐Ÿ‡ณ๐Ÿ‡ฑ Netherlands1.2%4.1%
๐Ÿ‡ณ๐Ÿ‡ฟ New Zealand1.0%2.9%
๐Ÿ‡ณ๐Ÿ‡ฎ Nicaragua3.3%2.5%
๐Ÿ‡ณ๐Ÿ‡ช Niger11.1%2.3%
๐Ÿ‡ณ๐Ÿ‡ฌ Nigeria*3.0%1.2%
๐Ÿ‡ฒ๐Ÿ‡ฐ North Macedonia3.2%-0.5%
๐Ÿ‡ณ๐Ÿ‡ด Norway1.5%0.8%
๐Ÿ‡ด๐Ÿ‡ฒ Oman2.7%6.0%
๐Ÿ‡ต๐Ÿ‡ฐ Pakistan2.5%3.0%
๐Ÿ‡ต๐Ÿ‡ผ Palau12.4%4.5%
๐Ÿ‡ต๐Ÿ‡ฆ Panama4.0%1.1%
๐Ÿ‡ต๐Ÿ‡ฌ Papua New Guinea5.0%5.3%
๐Ÿ‡ต๐Ÿ‡พ Paraguay3.8%0.6%
๐Ÿ‡ต๐Ÿ‡ช Peru2.7%2.3%
๐Ÿ‡ต๐Ÿ‡ญ Philippines5.9%-0.7%
๐Ÿ‡ต๐Ÿ‡ฑ Poland2.3%2.4%
๐Ÿ‡ต๐Ÿ‡น Portugal1.5%4.0%
๐Ÿ‡ต๐Ÿ‡ท Puerto Rico-0.2%2.2%
๐Ÿ‡ถ๐Ÿ‡ฆ Qatar2.2%2.2%
๐Ÿ‡ท๐Ÿ‡ด Romania3.8%6.2%
๐Ÿ‡ท๐Ÿ‡บ Russia*2.6%0.5%
๐Ÿ‡ท๐Ÿ‡ผ Rwanda7.0%8.0%
๐Ÿ‡ผ๐Ÿ‡ธ Samoa3.6%2.2%
๐Ÿ‡ธ๐Ÿ‡ฒ San Marino1.3%0.8%
๐Ÿ‡ธ๐Ÿ‡น Sรฃo Tomรฉ and Prรญncipe2.4%4.1%
๐Ÿ‡ธ๐Ÿ‡ฆ Saudi Arabia*2.7%2.0%
๐Ÿ‡ธ๐Ÿ‡ณ Senegal8.8%4.2%
๐Ÿ‡ท๐Ÿ‡ธ Serbia3.0%2.7%
๐Ÿ‡ธ๐Ÿ‡จ Seychelles3.9%1.0%
๐Ÿ‡ธ๐Ÿ‡ฑ Sierra Leone4.7%1.3%
๐Ÿ‡ธ๐Ÿ‡ฌ Singapore2.1%2.0%
๐Ÿ‡ธ๐Ÿ‡ฐ Slovak Republic2.5%2.5%
๐Ÿ‡ธ๐Ÿ‡ฎ Slovenia2.2%2.8%
๐Ÿ‡ธ๐Ÿ‡ง Solomon Islands2.4%0.9%
๐Ÿ‡ธ๐Ÿ‡ด Somalia3.7%3.5%
๐Ÿ‡ฟ๐Ÿ‡ฆ South Africa*1.0%2.5%
๐Ÿ‡ธ๐Ÿ‡ธ South Sudan4.2%4.9%
๐Ÿ‡ช๐Ÿ‡ธ Spain*1.5%3.2%
๐Ÿ‡ฐ๐Ÿ‡ณ St. Kitts and Nevis3.8%6.2%
๐Ÿ‡ฑ๐Ÿ‡จ St. Lucia2.3%-18.3%
๐Ÿ‡ป๐Ÿ‡จ St. Vincent and the Grenadines5.0%2.1%
๐Ÿ‡ธ๐Ÿ‡ฉ Sudan0.3%-0.7%
๐Ÿ‡ธ๐Ÿ‡ท Suriname3.0%0.9%
๐Ÿ‡ธ๐Ÿ‡ช Sweden0.6%4.0%
๐Ÿ‡จ๐Ÿ‡ญ Switzerland1.8%0.8%
๐Ÿ‡น๐Ÿ‡ผ Taiwan3.0%6.5%
๐Ÿ‡น๐Ÿ‡ฏ Tajikistan5.0%5.2%
๐Ÿ‡น๐Ÿ‡ฟ Tanzania6.1%2.7%
๐Ÿ‡น๐Ÿ‡ญ Thailand3.2%4.3%
๐Ÿ‡น๐Ÿ‡ฑ Timor-Leste3.1%5.6%
๐Ÿ‡น๐Ÿ‡ฌ Togo5.3%1.5%
๐Ÿ‡น๐Ÿ‡ด Tonga2.5%5.4%
๐Ÿ‡น๐Ÿ‡น Trinidad and Tobago2.2%2.6%
๐Ÿ‡น๐Ÿ‡ณ Tunisia1.9%2.5%
๐Ÿ‡น๐Ÿ‡ท Tรผrkiye3.0%1.3%
๐Ÿ‡น๐Ÿ‡ฒ Turkmenistan2.1%2.5%
๐Ÿ‡น๐Ÿ‡ป Tuvalu3.5%3.9%
๐Ÿ‡บ๐Ÿ‡ฌ Uganda5.7%4.6%
๐Ÿ‡บ๐Ÿ‡ฆ Ukraine3.2%2.0%
๐Ÿ‡ฆ๐Ÿ‡ช United Arab Emirates4.0%3.4%
๐Ÿ‡ฌ๐Ÿ‡ง United Kingdom*0.6%0.5%
๐Ÿ‡บ๐Ÿ‡ธ U.S.*2.1%2.1%
๐Ÿ‡บ๐Ÿ‡พ Uruguay3.3%1.0%
๐Ÿ‡บ๐Ÿ‡ฟ Uzbekistan5.5%5.5%
๐Ÿ‡ป๐Ÿ‡บ Vanuatu2.6%1.5%
๐Ÿ‡ป๐Ÿ‡ช Venezuela4.5%4.0%
๐Ÿ‡ป๐Ÿ‡ณ Vietnam5.8%4.7%
๐Ÿ‡ต๐Ÿ‡ธ West Bank and Gaza2.7%3.0%
๐Ÿ‡พ๐Ÿ‡ช Yemen2.0%-0.5%
๐Ÿ‡ฟ๐Ÿ‡ฒ Zambia4.3%3.6%
๐Ÿ‡ฟ๐Ÿ‡ผ Zimbabwe3.6%4.1%

*Reflect updated figures from the January 2024 IMF Update

In the United States, GDP growth is projected to remain moderately strong, supported by rising real wages boosting consumption across the economy.

Yet compared to last year, growth is set to slow amid a softening labor market. In 2024, Citigroup announced it was laying off 20,000 employees after a disappointing year. Meanwhile, tech firms such as Google, Amazon, and Salesforce are reducing headcounts. Along with this, package delivery giant UPS announced 12,000 job cuts.

In China, property market woes are dragging on economic growth. Declining real estate values have impacted incomes, assets, and the public mood. Due to these headwinds, consumption growth is forecast to drop over the year.

Over in Latin America, Chile and Brazil were among the first emerging countries to hike interest rates in 2021โ€”and they were some of the first to cut them last year. Thanks to improving domestic demand amid dissipating price spikes, the IMF upgraded the outlooks for Brazil and Mexico in 2024.

The lowest growth across all regions is forecast to be seen in Europe, at 0.9%. In late 2023, Signa, a multi-billion European property firm collapsed following the sharpest rise in interest rates in the European Union’s 25-year history. Also dimming the outlook is low consumer sentiment and the impact of high energy prices.

What are the Key Risks?

While no one holds a crystal ball, there are certain risks outlined by the IMF that could negatively impact global GDP growth:

  • Sharply Rising Commodity Prices: If geopolitical tensions escalate in the Israel-Hamas war, it could spillover into the broader region leading to spikes in energy prices. Over a third of global oil exports are based out of the region, in addition to 14% of global gas exports. Adding to this, 11% of international trade passes through the Red Sea, which has seen continued attacks between Iran-backed Houthi rebels and strikes from the U.S. and its allies.
  • Stubborn Inflation: A return of supply disruptions paired with an overheated labor market could add inflationary pressures, potentially leading to higher interest rates. In turn, stock markets could respond adversely and financial stability could deteriorate.
  • Chinaโ€™s Economy Slows: A property market rout could hurt domestic growth and consumer confidence, leading to declining consumption across the country. Accounting for nearly 19% of global GDP (PPP) in 2023, a slowing Chinese economy could impact countries that rely on trade with China.

While these risks remain present, the economy could witness positive surprises as well. Should inflation fall faster than expected, it would likely lead to monetary easing and a boost to global economic growth. Overall, the global economy defied expectations in 2023, and it may do the same in 2024.

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Chart: Is ESG Investing in Decline?

After the pandemic boom, ESG investments lost their luster amid high interest rates. Could they make a comeback?

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This graphic shows flows of ESG investments in the U.S.

Is ESG Investing in Decline?

These days, ESG investments have lost their luster given high interest rates, political backlash, and greenwashing scrutiny.

In 2021 during the pandemic boom, U.S. sustainable funds hit a record $358 billion in assets, up from $95 billion in 2017. But since then, investor interest has waned as higher borrowing costs impact capital-intensive clean tech stocks.

This graphic shows the drop in sustainable fund flowsโ€”often considered an indicator of investor sentimentโ€”based on data from Morningstar.

Slowing Demand

In 2023, investor appetite cooled for sustainable investments, as fund flows notched their worst year on record.

Overall, flows sank $13 billion as fund performance lagged behind conventional funds. Adding to this, concerns surrounding the murkiness of environmental, social, and governance (ESG) ratings were put under the spotlight.

As ESG pushback intensified in U.S. politics, at least 165 anti-ESG bills were introduced in 2023. Politicians have claimed that ESG criteria negatively impacts financial returns, but evidence behind that is mixed.

While sustainable funds underperformed traditional funds in 2023, a separate study showed that ESG portfolios had as much as 6% excess returns annually compared to benchmark indexes between 2014 and 2020.

ESG Investments: A Closer Look

One key aspect of ESG funds is whether they hold investments that align with the UN Sustainable Development Goals (SDGs).

Globally, 542 funds with $125 billion in assets are associated with at least one of these objectives. The table below shows the top five SDGs, by ETF assets under management (AUM).

SDGGoalNumber of ETFsAUM
SDG 13Climate Action275$65.4B
SDG 7Affordable
and Clean Energy
80$15.3B
SDG 9Industry, Innovation,
and Infrastructure
49$13.4B
SDG 6Clean Water
and Sanitation
16$9.1B
SDG 11Sustainable Cities
and Communities
34$5.5B

Source: Trackinsight. As of January 7, 2024.

We can see that Climate Action is the highest overall, with companies held in these ETFs making commitments to lower emissions and advance sustainability.

For instance, Home Depot has cut electricity use by over 50% since 2010 in U.S. stores, and aims to use renewables for all of its electricity by 2030. In addition, Microsoft has committed to this goal through a number of initiatives, including providing access to clean water to over one million people across Indonesia, Brazil, India, and Mexico in 2023.

While investor interest has slowed, 35% of advisors said they used ESG funds last year, based on a Journal of Financial Planning survey. As the industry matures, it remains to be seen if ESG investments will see a resurgence, especially if interest rates fall in the coming years.

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