A critical analysis of Swiss sustainable funds regarding performance and sustainability content
Creators: name: Archer-Svoboda, Laura
Publisher: name: ZHAW Zürcher Hochschule für Angewandte Wissenschaften
Year: 2021
Subjects: 332.6: Investition

description: The sustainable investing (SI) sector has experienced tremendous growth in Switzerland over the last decade. The ideology behind SI is that it is possible to contribute positively to society while generating sustainable, long-term returns at the same time. However, it is unclear how sustainable investments perform compared to traditional ones. Furthermore, there is increasing concern about the authenticity of SIs due to accusations of greenwashing, and a lack of transparency and regulations in Switzerland. 
The aim of this Bachelor’s thesis was to determine whether actively managed Swiss sustainable funds (SFs) outperform their traditional counterparts regarding performance, volatility and costs. Additionally, the thesis investigated the sustainability content of SFs and whether there is a difference compared to traditional funds (TFs). 
A selection of 20 Swiss SFs and 22 Swiss TFs were analyzed from 3 January 2011 until 31 December 2020 by extracting daily net asset values, total expense ratios, and environmental, social, and governance (ESG) rating scores from Refinitiv. The costs of the funds were compared, descriptive statistics were applied to the fund samples and their results were compared on an annual basis for the years between 2016 and 2020, and on a 3-year, 5-year and 10-year basis to determine their performance and risk characteristics. Further, ESG scores were used to determine the similarities and levels of sustainability of the SFs, TFs and main holdings of the funds. 
The results of the fund analysis indicated that Swiss SFs outperform TFs over a short-term and on a 3-year basis, as well as during both strong and weak market conditions. SFs generate, on average, higher annualized and excess returns, and experience comparable to lower volatility, but slightly higher maximum drawdowns than their traditional counterparts. Long-term, however, SFs do not on average outperform TFs and experience slightly lower annualized and excess returns as well as higher volatility than TFs. These results may not, however, provide a true representation of future long-term performance due to the change and growth in the SI industry in recent years. The cost analysis determined that SFs cost, on average, less than TFs. A future study could explore the validity of this result. Furthermore, the sustainability analysis indicated that the difference in ESG scoring and fund content between SFs and TFs is minimal. SFs are not entirely sustainable, and greenwashing appears to be an issue.
The results imply that investors need to critically question the real sustainable content of their investments, and not only consider performance, volatility, and costs when choosing a sustainable investment. Furthermore, the findings from the sustainability analysis reinforce the need for the Swiss Federal Council to enact effective measures such as regulations, to create transparency and mitigate greenwashing, in order for Switzerland to maintain a strong position as a leading financial center.