A frequent challenge for those folks focused on building ESG-type model portfolios is diversification, with the bulk of the equity bucket likely to be filled with longer duration assets such in areas such as renewable energy and technology solutions.

With that in mind we thought we would have a glance at our databases to see to what extent the allocators we cover may be mitigating their equity book with shorter duration bond funds. 

In total, there are 27 short duration bond funds owned by the ESG portfolios we cover, with the most popular being Twenty Four Short Duration Bond Income, and EdenTree Responsible and Sustainable Short Duration Bond fund.

The only ESG bond fund more popular than those, appearing in 10 portfolios, is Rathbone Ethical Bond, which performed well this year by virtue of it having a distinctly short duration stance when so many have had a longer duration position - though this fund struggled in 2022.

And indeed ESG portfolios have, on average, a higher exposure to short duration bonds than their growth and income counterparts.

The average exposure to short duration bonds in an ESG portfolio is 1.73 per cent compared to 1.3 per cent in income portfolios and 1.45 in growth non-ESG portfolios.

On top of this, a higher proportion of portfolios in our ESG database have an allocation to short-dated bonds. Of the ESG allocators we cover, 28 per cent have a short-duration bond fund position while this number is 12.5 per cent for income portfolios and 25 per cent for non-ESG growth portfolios.

The most widely owned short duration bond fund in the non-ESG portfolios we monitor is Legal and General’s Sterling Corporate Bond Index fund which appears in seven portfolios. 

If one looks into the high yield universe, where duration is traditionally short, one sees the Axa US Short Duration High Yield fund is owned by five of the allocators we cover.