To zero in on the best socially responsible funds, use these sortable fund tables.
How to invest with a social conscience? For most investors the easiest and the best way is to own a fund.
Join a big crowd. At year-end Morningstar counted 534 U.S. funds, with $357 billion in assets, in its “sustainable” category, which includes portfolios sensitive to either environmental concerns or such other matters as gender equity or social justice. The usual name for this broad theme is ESG: investing in companies that do best on environmental, social or governance scorecards.
Money is rushing in. Last year saw the creation of 121 new ESG funds and a flow of $69 billion in net share purchases.
It’s a bewildering array of choices and this survey whittles it down. Below are tables displaying first the best-performing ESG funds and then the Best Buys—that is, the most economical funds.
Here are the socially conscious funds with the good records:
They’ve all beaten the market (as defined by the Vanguard Total Stock Market fund) over the past ten years; that’s after expenses averaging 0.5%. But there are two cautions with any list of top-performing funds.
One is that ESG funds have had the wind at their backs. Since 2012 digital investments like Alphabet have outperformed smokestack investments like Exxon Mobil. But that won’t always be true.
The other thing has to do with that word “performing.” The present tense of the participle, to which English syntax confines us in this context, suggests ongoing skill. But in fact all we know about a fund is what it did in the past. In money management the past is only weakly suggestive of the future.
An entirely different way to pick an investment company is to ignore its past and focus on its cost. Here are 39 Best Buys, defined as funds with expenses running no higher than 0.3% of assets annually.
It is fortunate for socially conscious investors that a price war is underway in the fund business. Fidelity takes the prize for the lowest-cost open-end (which is to say, mutual) ESG fund, with an expense ratio of 0.11%. You can get socially conscious exchange-traded funds for even less than that.
The lowest-cost ETF on the list, Engine No. 1 Transform 500, is a fund that isn’t choosing which companies to avoid but instead promises to use its shares to support good causes in shareholder votes. This quest is not entirely quixotic. Engine No. 1 last year won some board seats at Exxon Mobil. But note that you could get some of the same impact from any iShares fund, since iShares are part of BlackRock and the guy running BlackRock, Larry Fink, is crusading for the same sort of boardroom reform that Engine No. 1 is.
Three funds made both the Best Performers and Best Buys lists: Vanguard FTSE Social, Calvert US Large Cap Core Responsible and iShares MSCI KLD 400 Social.
The tables above are sortable. If you are looking for an ETF and liquidity matters, sort on the assets column and select a big fund. If diversification matters, sort by number of stocks held.
And then do more research to see if the fund is accomplishing what you want. ESG managers differ greatly in how they define responsible investing.
For quick access to fees, largest holdings and sustainability scores, it’s hard to beat Morningstar.com. Although some of Morningstar’s tools are available only to subscribers, a great deal of information can be found on the free side of the paywall.
Fund vendors have lots of documentation on their websites, but it may take you a fair amount of fumbling with Google and click-throughs to get where you want to go. The speediest route to a prospectus or list of all holdings, I find, is often via Fidelity’s fund search tool; use the ticker and look for the “Prospectus, Reports, Holdings” tab.
The Fidelity prospectus database appears to have all ETFs. It omits Vanguard’s open-end funds. It’s available to investors who do not have Fidelity accounts.