These socially responsible funds do the vetting for you.
Wall Street may not always be associated with morality, but that doesn’t mean investing has to be devoid of a conscience. In fact, socially responsible investing has been on the rise, and a number of funds aiming to track ethically sound companies have popped up in recent years. While the focus of these funds varies from name to name, they generally eschew the weapons industry and avoid “sin stocks” in industries like tobacco and alcohol. Funds are a great way to invest around themes, and while socially conscious investors should do some legwork, the following seven funds are a good place to start.
Vanguard ESG U.S. Stock ETF (ticker: ESGV)
ESGV invests in assets that have sustainability standards. Its fund managers choose U.S. companies that must meet environmental, social and corporate governance criteria. This exchange-traded fund holds about 1,400 stocks with companies of varying market capitalizations, including some well-known names like Apple (AAPL), Microsoft Corp. (MSFT) and Amazon.com (AMZN). According to Vanguard, ESGV excludes stocks of certain companies that don’t meet standards of U.N. global compact principles and companies that don’t meet certain diversity criteria. Stefano Safaei, managing director of investments at Wedbush Securities, highlights ESGV’s low expense ratio and impressive performance as attractive features for investors. “Although past performance is not indicative of future returns, ESGV has produced one of the highest returns relative to other ESG mutual funds and ETFs while maintaining one of the largest numbers of individual holdings compared to similar investment options,” he says.
Trailing one-year return: 75.2%
Expense ratio: 0.12%
1919 Socially Responsible Balanced Fund (SSIAX)
This socially responsible fund focuses on finding undervalued securities that have a long-term investment appeal and strong sustainability characteristics. Some of the fund’s criteria include excluding companies that have significant direct exposure to fossil fuel real assets, investing in companies with fair employment practices and seeking assets that have respect for human rights, among other guidelines. This balanced fund has an asset mix of equities, which account for about 65% of the portfolio, fixed income at a 25% allocation and cash holdings at about 10%. “Since it’s a balanced fund, starter investors get the opportunity to pick one fund and have both stocks and bonds,” says Peter Krull, CEO at Earth Equity Advisors in Ashville, North Carolina. Krull points to the fund’s holdings of “solutions based” companies like Thermo Fisher Scientific (TMO), Hannon Armstrong Sustainable Infrastructure (HASI), SolarEdge Technologies (SEDG), Prologis (PLD) and Beyond Meat (BYND), to name a few.
Trailing one-year return: 43%
Expense ratio: 1.26%
Fidelity International Sustainability Index Fund (FNIDX)
FNIDX invests in a combination of growth and value-oriented international equities. In fact, most of its securities are a part of the MSCI ACWI ex USA ESG Index, a capitalization-weighted index that offers investors exposure to large and midcap companies in developed and emerging markets with high ESG performance. Among several other funds on this list, Colin Sturgis, principal at SignatureFD, an Atlanta-based wealth management firm, says he likes FNIDX because it’s a low-cost investment that offers socially responsible investment exposure. In addition, FNIDX’s three-year average annual returns of about 7.4% are in line with its benchmark index’s three-year performance. Investments such as FNIDX, Sturgis says, are “a good option for investors who want to have a tilt toward SRI in their portfolio without a large performance dispersion from the funds underlying benchmark.”
Trailing one-year return: 60.1%
Expense ratio: 0.2%
Fidelity Sustainability Bond Index Fund (FNDSX)
While socially conscious investing is usually accomplished through equity investments, it is not exclusive to stock funds. Investors can also include ESG bond funds in their portfolios. This means by effectively lending your money to a company, you are supporting businesses with actions that align with your personal values. A sustainable bond fund, FNDSX, falls under this category. Among its top holdings, FNDSX’s portfolio consists of a mix of government and corporate bonds and mortgage-backed securities. This Fidelity fund follows the Bloomberg Barclays MSCI U.S. Aggregate ESG Choice Bond Index, which includes investment-grade debt securities. This benchmark screens investments and only includes securities that have an MSCI ESG rating greater than or equal to BB. Some issuers do not qualify under their ESG criteria, including businesses involved in alcohol, gambling, tobacco, military weapons, civilian firearms and nuclear power, among several others.
Trailing one-year return: 0.01%
Expense ratio: 0.1%
Calvert US Large-Cap Core Responsible Index Fund (CISIX)
Calvert is a firm known for its “authentic corporate engagement and shareholder advocacy,” says Andrew Bellak, CEO of Stakeholders Capital based in Amherst, Massachusetts. “We particularly like the index stock funds from Calvert that have very low fees (annual expense ratios) and broad diversification, specifically, Calvert Large-Cap US Core Index Fund Institutional Shares (CISIX),” Bellak says. Calvert’s research process involves rigorous criteria in measuring ESG factors and ultimately has to meet the firm’s principles for socially responsible investing. Notably, companies that do not meet Calvert’s principles for responsible investing and thus not included in this fund are Facebook (FB), Berkshire Hathaway (BRK.A, BRK.B), Johnson & Johnson (JNJ) and Tyson Foods (TSN). CISIX has recorded 100% of proxy votes for climate change and gender pay equity. According to the fund’s fact sheet, its holdings had 88% lower fossil fuel reserves, 100% lower tobacco exposure and 83% lower toxic emissions than the Russell 1000.
Trailing one-year return: 73.2%
Expense ratio: 0.24%
SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX)
Environmentally conscious investors may find some appealing features in SPYX. The fund, made up of large-cap U.S. equities, tracks the performance of the S&P 500 Fossil Fuel Free Index, which includes companies that do not own fossil fuel reserves. Given its investment strategy, this ETF could serve as an alternative S&P 500 exposure for investors concerned about climate change as a core ESG principle. Sturgis says investors should dig into the fund’s more than 480 holdings to ensure they align with your investment strategy and personal values. “Many people would be surprised that oil field service companies like Schlumberger (SLB) and Halliburton (HAL) are held in this fund in addition to oil and gas pipeline companies like Phillips 66 (PSX) and Marathon Petroleum (MPC),” Sturgis says. These companies don’t have fossil fuel reserves, but if investors want to eliminate carbon from their investment portfolio, Sturgis says you may not want to own oil field services or pipeline companies.
Trailing one-year return: 66.4%
Expense ratio: 0.2%
Shelton Green Alpha Fund (NEXTX)
NEXTX seeks environmentally conscious companies that have demonstrated their ability to manage environmental risk and have above-average growth potential. Krull says this fully solutions-based fund holds the notion that “you cannot invest in the future by using benchmarks from the past.” NEXTX is managed by Green Alpha Advisors, an investment advisor that believes in a “green economy” philosophy, or the belief that companies that put forth innovative solutions with an emphasis on improving human well-being while reducing environmental risk provide many opportunities for an efficient and sustainable, growing economy. “Companies in the fund are focused on an economy that is more resilient and sustainable without the constraints of an arbitrary, backward-looking benchmark,” Krull explains. “We use this fund in all of our diversified mutual fund portfolios because our clients want to be a part of the solution and not the problem.”
Trailing one-year return: 188.4%
Expense ratio: 1.28%
The best socially responsible funds to buy for 2021:
— Vanguard ESG U.S. Stock ETF (ESGV)
— 1919 Socially Responsible Balanced Fund (SSIAX)
— Fidelity International Sustainability Index Fund (FNIDX)
— Fidelity Sustainability Bond Index Fund (FNDSX)
— Calvert US Large-Cap Core Responsible Index Fund (CISIX)
— SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX)
— Shelton Green Alpha Fund (NEXTX)
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Update 04/06/21: This story was published at an earlier date and has been updated with new information.