Several clients have asked me to help them identify social responsible investing alternatives. They wanted to live their beliefs. I thought there had to be publicly available resources to help screen mutual funds focused on socially responsible investing. I also wanted to make sure that under the guise of social responsibility, my clients didn’t choose mutual funds with high fees that would really hurt the fund’s performance.
A quick Internet search found an informative website that provides some basics about social responsible investing: The Forum for Responsible and Sustainable Investing. Although there are other sites such as Social Funds, I found the Forum’s website to be more user friendly for mutual fund research and comparisons.
According to the Forum, there are two SRI strategies: “The first is ESG incorporation, the consideration of environmental, community, other societal and corporate governance (ESG) criteria in investment analysis and portfolio construction across a range of asset classes. An important segment, community investing, seeks explicitly to finance projects or institutions that will serve poor and underserved communities in the United States and overseas. The second strategy, for those with shares in publicly traded companies, is filing shareholder resolutions and practicing other forms of shareholder engagement.”
The Forum’s site also contains a chart of mutual funds complied by Bloomberg that are SRI-focused (http://charts.ussif.org/mfpc/). The chart of mutual funds also provides a list of attributes about each fund’s SRI approach. For example, the chart describes whether the fund screens or excludes certain activities, such as not investing in companies that sell tobacco, alcohol, or weapons. The one downside to the chart is that the information is self-reported and not verified by an independent party, but it is a starting place.
The Forum’s chart also lists the financial performance of each mutual funds. I found the performance attribute table hard to use because it lists funds by mutual fund company rather than by type of fund (e.g., large cap, international, etc.) so that a potential investor can easily make meaningful comparisons. The one glaring omission from the chart is the lack of Vanguard FTSE Social Equity Fund.
I sorted the equity funds by category (large cap funds, mid and small cap funds, and international funds) and eliminated the ones that required a minimum investment of more than $5,000. I then compared the remaining equity funds to category benchmarks based on the five-year return statistic provided by Morningstar as of March 18, 2018. If a fund is not yet five years old, I also eliminated it from consideration.
The following mutual funds have outperformed the category benchmark (which is listed below) on the five-year return. Of course, past results are not a guarantee of future performance, but it is an easy way to narrow down the list of choices. These funds represent wide segments of the market and different approaches to SRI investing. You can use the features chart at the Forum site (http://charts.ussif.org/mfpc/) to see if the fund has the SRI features that appeal to you. And of course, I urge you to review the funds’ prospectus before investing.
Large Cap Funds – Exceeding the Vanguard 500 Index Fund (ticker: VFIAX)
- Praxis Growth Index A (MGNDX)
- Vanguard FTSE Social Index (VFTSX)
- Parnassus Fund (PARNX)
Mid / Small Cap Fund – Exceeding Either Vanguard Small Cap Index (VSMAX) or Vanguard Mid Cap Index (VIMAX) (all are mid cap except the Praxis Fund)
- Sentinel Sustainable Mid Cap Opportunities A (WAEGX)
- Sentinel Sustainable Mid Cap Opportunities I (CEGIX)
- Praxis Small Cap A (MMSCX)
- Azzad Ethical (ADJEX)
- Calvert Appreciation Accumulation C (CCACX)
- Calvert Appreciation Accumulation A (CCAFX)
International Funds – Exceeding Fidelity Spartan International Index (FSIVX)
- Domini International Social Equity Inv (DOMIX)
- UBS Global Sustainable Equity A (BNIEX)
- Portfolio 21 Global Equity R (PORTX)
- Pax World Environmental Markets Ind Inv (PGRNX)
The bottom line is that several SRI funds have performed well and offer investors opportunities to advance social and environmental goals that mean the most to them.