2024 was a busy and rewarding year for Parmenion’s sustainable, ethical and ESG solutions. In this article, we’ll take you through the standout moments, highlight the key achievements and share why we’re feeling positive about 2025.
A strong performance in 2024
After the challenges of 2022 and 2023, 2024 was a more favourable environment for sustainable investing. With inflation moderating and interest rates trending downwards, our portfolios delivered strong results.
Many of our sustainable, ethical and ESG solutions outperformed their IA sector peer groups in 2024. For instance, our Risk Grade 6 model showed steady performance, as the chart below shows. However, some of our portfolios lagged the broad IA peer group due to their underweight allocation to US equity and bias towards quality, smaller and mid-sized companies, which generally lagged large growth companies.
Source: FE analytics, performance shown for 12 months to 31 December 2024.
While the difficult market conditions of 2022 continue to weigh on 3-year returns, a much stronger 2024 has propelled the mid-risk portfolios within our sustainable, ethical and ESG solutions to outperform their IA benchmark over the last five years, as shown in the following chart.
Source: FE analytics, performance shown for 5 years to 31 December 2024. Note: The PIM Strategic Passive ESG solution, launched in September 2022, has not been included due to its shorter performance track record. Over the period from its inception on 31 March 2022 to 31 December 2024, the cumulative performance of the PIM Strategic Passive ESG Risk Grade 6 portfolio was 6.75% versus 6.13% for the IA Mixed 20-60% sector.
Exciting opportunities for 2025 and beyond
Looking ahead, we see plenty of potential for further attractive returns over the medium term. Our Strategic Ethical Active solutions, for example, have a notable bias to small and mid-cap stocks. These smaller companies are currently trading at a 17% discount on a price-to-earnings ratio. This is the cheapest relative valuations seen for over 20 years and could present significant growth opportunities.
Source: Montanaro, 31 December 2024.
A broadening market rally
In 2023 and early 2024, the so-called “Magnificent 7” stocks (Microsoft, Apple, Alphabet, Amazon, Meta, Tesla and Nvidia) dominated markets. For sustainable portfolios, keeping up was a challenge as many avoid these companies due to ethical concerns (e.g. Amazon’s treatment of workers or Meta’s social impacts).
However, over the latter part of 2024, it was encouraging to see the market rally broadening out, with a wider range of companies performing strongly. Our sustainable, ethical and ESG solutions are underweight to the Magnificent 7, as shown in the table below: with total exposure to of 3.1% to 4.8% in our 100% equity (Risk Grade 10) models, versus 21.3% for the global market (as measured by the iShares MSCI ACWI ETF). This means that the portfolios are more diversified with less stock-specific risk and are less reliant on a handful of mega cap stocks to drive returns.
| | Ethical A RG10 | Ethical B R10 | Ethical C RG10 | Ethical D RG10 | Passive ESG RG10 | iShares MSCI ACWI ETF |
|---|---|---|---|---|---|---|
| Microsoft | 1.9 | 1.8 | 2.1 | 2.1 | 1.5 | 3.9 |
| Apple | 0.3 | 0 | 0.8 | 0.8 | 0 | 4.7 |
| Alphabet | 0.4 | 0.5 | 0.4 | 0.4 | 0 | 2.6 |
| Amazon | 0.3 | 0 | 0 | 0 | 0 | 2.7 |
| Nvidia | 0.8 | 0.8 | 1.5 | 1.5 | 1.6 | 4.1 |
| Meta | 0 | 0 | 0 | 0 | 0 | 1.7 |
| Tesla | 0 | 0 | 0 | 0 | 0.8 | 1.6 |
| Total | 3.7 | 3.1 | 4.8 | 4.8 | 3.9 | 21.3 |
Source: Morningstar Direct as at 30 November 2024
Resilient inflows
Despite a slowdown compared to the peaks seen of 2020-2021, flows into sustainable funds remained strong in 2024, particularly in Europe. Global sustainable assets also hit a new high of $3.3 trillion on 30 September 2024, as shown in the chart below.
Source: Morningstar Direct, September 2024
Improving investor sentiment
The new Sustainability Disclosure Requirements (SDR) are introducing a range of four sustainability fund labels which UK domiciled funds can adopt. This is now gathering momentum – over 30 funds have labels already and over 119 are in the process. While it’s early days, many advisers we work with feel the labels will give clients more confidence to invest sustainably.
Globally, sentiment towards ESG investing is also improving. Morningstar’s latest asset owner survey found that 67% of the largest investors think ESG issues have become more material over last five years. Climate change remains a key concern for investors, with 64% highlighting its growing importance, driven by increasingly frequent extreme weather events like hurricanes in Florida and floods in Spain. 58% of investors think social issues have become more material over the last year and 55% see that governance issues have become more important.
What we’ve been up to
2024 was a milestone packed year for Parmenion. Here’s what we achieved:
- Published our first annual TCFD report, which involved measuring our emissions and setting an ambitious target to achieve net zero by 2040.
- Released our first UN PRI report, achieving four stars in all assessed areas - above or in line with the average.
- Collaborated with our expert, independent Ethical Oversight Committee to conduct in-depth research on 31 funds - meeting with the portfolio managers to evaluate new and existing options.
- Completed on-site visits with some of our key fund managers to assess their ESG credentials in detail.
- Reviewed and refined the strategic asset allocation for our solutions, adding a new global small and mid-cap equity allocation to Profiles A, B, C and Passive ESG - and a new sovereign green bonds allocation into Profile D to improve diversification and enhance expected risk-adjusted returns.
- Enhanced our quarterly reporting by including additional ESG metrics.
- Refreshed our marketing materials to provide clearer insights for our solution guides and a new guide to negative screening.
- Actively engaged with SDR regulations, with lots of ongoing discussions with our fund managers as well as responding to the FCA consultation.
Looking ahead
2024 was a productive and rewarding year for our sustainable, ethical and ESG solutions. As we head into 2025, we’re excited about the opportunities ahead and have plenty of plans to continue enhancing the investment and ESG characteristics of our portfolios.
This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity.
Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.
