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Top Ranked Socially Responsible Mutual Funds

Abhijit Ghosh

Back in 2008, some MBA students at the University of California, Berkeley, launched a Socially Responsible Investment (SRI) fund that has returned over 50% in six years. Performance of this fund, Haas Socially Responsible Investment Fund, is just an example of the potential of SRI funds.
The demand for SRI has been gaining strength in recent years and is most likely to grow. F&C Asset Management says environmental, social and governance (:ESG) issues are now “material to long-term company performance”. The asset management firm believes investor values, management of risks and stronger codes and standards will drive responsible investing, which “continues to gather momentum globally”.

For investors interested in socially responsible investment, we have certain top ranked funds to suggest. Before that, let us take a look at what socially responsible investment is about and its performance so far.

Growth of SRI

SRI is indeed witnessing higher demand. A Forbes article last year said that $1 of every $9 in professional management in the US can fall under the SRI category. The Forbes article also reported that SRI investing has increased over 22% to $3.74 trillion worth of total assets under management (period not specified).
The Wall Street Journal reported “environmental and social issues have accounted for 56% of shareholder proposals, representing a majority for the first time” in 2014. The surge in number of socially responsible mutual funds itself echoes the growth story. Reportedly, there were over 50 mutual funds in this category in 1995. As of 2012, the number reached almost 500.

Changing Dynamics

Over the years, the SRI term has evolved to be also known as sustainable responsible investing. SRI investors now stand better chance of getting more returns banking on larger options of funds, diversification of investments and improved approach.
The number of funds has increased by a great margin and investors also get option to invest in Exchange Traded Funds. There are funds of all market capitalization and investors can also pick among domestic, foreign and global funds. In fact, investors get the option to invest in funds whose strategy and social responsibility agenda matches with that of investor financial objectives. The approach thus has improved.
Investments are now made not only based on social or environmental conscience. Now, there are funds that may invest in companies such as gun manufacturers or casinos.

3 Social Responsible Funds to Buy

It is obvious that investors are not only looking for social causes. iShares MSCI USA ESG Select Social Index Fund (KLD), which tracks equity performance of companies with positive environmental, social and governance (:ESG) characteristics, has returned 108.4% in the last 5 years. Thus, the chance of earning is strong enough from these socially responsible funds. Here we will suggest 3 such funds that carry Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy) and have provided decent returns.

Domini Social Equity Investor (DSEFX) seeks to provide total return over the long term. The fund invests a lion’s share of its assets in securities of mid to large domestic companies. Investments are made after evaluating the social and environmental standards in which the businesses are involved in.
Top holdings include Microsoft Corporation, Eli Lilly and Co and Apache Corporation

The fund currently carries a Zacks Rank #1 (Strong Buy). The fund has returned 2.3% year to date. Over the last one, three and five years, the fund has returned 22.1%, 11.2% and 18.8%, respectively.

Calvert Large Cap Core A (CMIFX) seeks to provide return higher than that of Russell 1000 Index. It invests a lion’s share of its assets in large-cap domestic companies whose financial, sustainability and social responsibility investment factors match the fund’s strategy. It is part of Calvert Investments, which is considered to be one of the largest SRI firms in the US.

Top holdings include Apple Inc., Johnson & Johnson and Capital One Financial Corp.
The fund currently carries a Zacks Rank #2 (Buy). The fund has returned 1.2% year to date. Over the last one, three and five years, the fund has returned 15.5%, 11.7% and 18.3%, respectively.
Parnassus Small-Cap (PARSX) invests in companies whose market capitalization is below $3 billion during the initial purchase. It is part of Parnassus Investments which claim their “investment philosophy is to own good businesses at attractive valuations”. Parnassus’ funds fund generally omits securities from alcohol, tobacco, gambling and even at times companies that engage in producing electricity from nuclear power.

Top holdings include Compass Minerals International, Inc., Gentex Corporation and Dominion Diamond Corp. The fund currently carries a Zacks Rank #1 (Strong Buy). The fund has returned -7.31% year to date. However, over the last one, three and five years, the fund has returned 17.0%, 3.5% and 16.1%, respectively.

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