Socially responsible investing is growing in popularity.
Over the last several years, there’s been a massive trend toward the democratization of investing. It’s easier than ever before for individual investors to make tactical bets on individual companies, sectors or regions of the world, thanks to the host of products that are now available. One particularly popular area in an era of social unrest and climate change is the universe of ESG products — that is, funds that look to invest in companies that meet certain environmental, social and governance criteria. The following seven funds are all $5 billion in size or larger, proving that it’s quite popular to invest with your values in mind these days. If you’re looking for socially responsible funds, here are some of the most popular options now.
Parnassus Core Equity Fund Investor Shares (ticker: PRBLX)
With $29 billion in assets under management, this fund is one of the largest out there with a socially responsible bent. That’s pretty impressive, considering the Parnassus fund doesn’t even put any of the buzzwords around responsible investing in its formal name. However, this large-cap fund’s mission is to build a custom portfolio of the biggest U.S. corporations that offer “long-term competitive advantages and relevancy, quality management teams and positive performance on ESG criteria.” That last part is what socially responsible investors care about. Top holdings in this focused portfolio of only about 40 stocks include familiar large-cap tech names, such as Microsoft Corp. (MSFT) and Google parent company Alphabet Inc. (GOOG, GOOGL).
iShares ESG Aware MSCI USA ETF (ESGU)
The go-to exchange-traded fund option for socially responsible investors, ESGU is a roughly $25 billion investment product that boasts a much deeper list, with about 320 components at present. Investors may think this makes the fund more diversified, and in a way it does. However, the top three positions, Apple Inc. (AAPL), Microsoft and Amazon.com Inc. (AMZN), represent more than 20% of the portfolio. Many ESG-focused funds are tech-heavy, so this isn’t necessarily out of place with the broader marketplace. But it’s important to acknowledge that a bigger number of total components doesn’t always mean you’re less reliant on a short list of top names.
Vanguard FTSE Social Index Fund Admiral Shares (VFTAX)
With a minimum investment of $3,000, this Vanguard fund may not be ideal for very small investors. Still, it’s accessible for those who have a few thousand bucks to deploy on an ESG-related strategy — and with a rock-bottom expense ratio of just 0.14%, or $14 annually on every $10,000 invested, you may not find a cheaper option. The mutual fund is built based on a weighted index composed of large- and mid-capitalization stocks, with larger stocks holding more sway. The result is a portfolio of about 500 stocks — but like ESGU, a few components do most of the legwork here, with roughly 32% of assets in the top 10 holdings. Index funds like this $15 billion Vanguard offering aren’t particularly sophisticated, but they’re affordable and simple ways to achieve your ESG investing goals.
Parnassus Mid Cap Fund Investor Shares (PARMX)
This nearly $8 billion Parnassus fund offers a short list of U.S. stocks that meet its ESG criteria as well as other performance metrics. The difference is that it excludes the biggest names and instead focuses on the Goldilocks universe of midsize corporations that are neither too large nor too small. The portfolio of about 50 total names includes auto parts store O’Reilly Automotive Inc. (ORLY) and regional financial firm Signature Bank (SBNY), among others. Despite the relatively short list of total holdings, no single pick represents more than 4% or so of the portfolio to offer a fairly diversified swath of the domestic mid-cap market. And with an ESG screening overlay, you can have confidence that these smaller companies are still doing their part to be socially responsible.
iShares ESG Aware MSCI EM ETF (ESGE)
Looking beyond U.S. stocks, the roughly $6 billion ESGE fund from iShares offers an emerging markets bent on socially responsible investing. Though you may recognize some of the top stocks on the list, including chipmaker Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) or consumer tech giant Samsung Electronics Co. Ltd. (SSNLF), there are many picks among the 330 holdings you likely haven’t run across before because they mainly do business in Asia or South America. These aren’t just a random assortment of emerging markets stocks, however, as iShares has made sure the components of this ETF offer better metrics on ESG criteria than their local peers.
iShares Global Clean Energy UCITS ETF (INRG)
Focused only on clean energy, the sustainability focus of this nearly $6 billion iShares fund should be obvious. However, what may not be obvious is the acronym UCITS that’s in the name. It stands for Undertakings for the Collective Investment in Transferable Securities, and it is a regulatory framework in Europe that demands a certain level of oversight. In many ways, Europe is ahead of the curve when it comes to both investment safeguards as well as sustainability disclosures, so this is a great way to have confidence in your socially responsible investing strategy even if you live in the U.S. Additionally, as Europe is ahead of the U.S. on green energy, it helps that this fund also can include overseas companies such as Denmark-based turbine giant Vestas Wind Systems (VWDRY) above the limited universe of domestic names.
Vanguard ESG U.S. Stock ETF (ESGV)
This last selection is perhaps the simplest of the group, a $5 billion Vanguard fund with about 1,500 stocks, including a wide swath of domestic corporations that generally get passing marks for environmental, social and governance criteria. One way of looking at ESGV is to stop worrying about how stocks are included, as you’ll find a host of the usual blue-chip brands, such as Apple, JPMorgan Chase & Co. (JPM) and UnitedHealth Group Inc. (UNH). Instead, investors should focus on what was cut out — including Big Oil stocks, firearms companies and the stocks that generally get the lowest ratings for corporate governance. It’s not terribly sophisticated, but if you want a diversified and straightforward approach to socially responsible investing, ESGV could be worth a look.
The seven best socially responsible funds:
— Parnassus Core Equity Fund Investor Shares (PRBLX)
— iShares ESG Aware MSCI USA ETF (ESGU)
— Vanguard FTSE Social Index Fund Admiral Shares (VFTAX)
— Parnassus Mid Cap Fund Investor Shares (PARMX)
— iShares ESG Aware MSCI EM ETF (ESGE)
— iShares Global Clean Energy UCITS ETF (INRG)
— Vanguard ESG U.S. Stock ETF (ESGV)
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7 Best Socially Responsible Funds originally appeared on usnews.com
Update 03/23/22: This story was published at an earlier date and has been updated with new information.
