5 Socially Responsible Funds that Pass the Stress Test
Investors can serve their conscience and their retirement portfolios with funds that fit their core values. But put them to the test first.
When investors and financial professionals talk about building a portfolio, they usually put the focus on risk vs. reward, or growth vs. preservation.
Sometimes, though, the conversation moves past that, and people choose to follow their conscience, putting at least some of their money where their values are — or taking it away when they feel a company has done something wrong.
We saw that in April, when a video of a passenger being dragged off a United Airlines plane went viral and the company’s stock hit severe turbulence. It’s hard to say what will happen in the long term, but in those first few days, customers — and United stockholders — made it clear they weren’t happy.
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That got me thinking again about how advisers often tell their clients to avoid emotion when managing their portfolios.
That’s great advice when you’re talking about greed and fear and how difficult it can be to time the market. Certainly, you want to avoid knee-jerk moves that could cost you dearly as the market rises and falls.
But I don’t think it’s a bad thing when people want to explore investing in a way that gives them a good feeling about what they’re doing with their money — whether it’s a fund that focuses on sustainability or women’s issues or one that has faith-based requirements. Especially for younger workers, who might feel apathetic about spending less today to save for a retirement that seems far away, socially responsible or ethically minded investing could lead to a positive pattern of saving behavior. Instead of signing up for faceless funds they know nothing about, they can put their money into companies that are working to change the world. That kind of emotional response just might be all the encouragement they need to start and continue investing.
The problem, many advisers will warn, is that the return on investment isn’t always there with these funds. There are always going to be people willing to take advantage of what they perceive to be naivete or just plain old foolishness. It can be discouraging.
But there are several funds that have performed well over time against their S&P benchmarks. I found a few and stress-tested them in April, when the United incident was in the news. (For the record, I’m not affiliated with these funds in any way, and I don’t sell them.)
1. Global X S&P 500 Catholic Values ETF (Ticker: CATH)
This fund excludes companies involved in activities that are inconsistent with Catholic values and seeks results that generally correspond to the price and yield performance of the S&P 500 Catholic Values Index. It’s a large blend fund with a low expense ratio. There are similar funds out there, but most I’ve seen have had some lag over the long run. This fund is a bit newer, but it hasn’t had quite the lag so far.
2. TIAA-CREF Social Choice Equity Fund (Ticker: TICRX)
This fund seeks to reflect the investment performance of the overall U.S. stock market while giving special consideration to certain environmental, social and governance (ESG) criteria. It’s lagged a little in recent years, but it has a pretty good track record and a solid name behind it. If you’re cost-conscious, you’ll want to note that its expense ratio is a bit higher (0.46%) than the previous fund but is still not terrible overall.
3. Appleseed Fund (Ticker: APPLX)
Launched in December 2006, this fund’s goal is to generate market-beating returns by investing in well-managed, highly competitive businesses screened for ESG factors. One of its pluses is its diversified mix, which includes some alternative assets and some fixed-income assets. It has a 1.14% expense ratio, so it’s pricey, but it’s a little less volatile than the S&P. It has lagged behind in recent years in total performance, but it could help with diversification and risk-adjusted returns.
4. Parnassus Endeavor Fund (Ticker: PARWX)
This large-company growth fund uses the usual ESG assessments, but it also excludes firms involved with fossil fuels, and it likes companies that have high worker satisfaction. That apparently has been paying dividends. Parnassus has managed funds since 1984, so they’re well-established, even if the fund is newer. As for cost, the fund is a little on the high side, but it performs well under stress testing, and on our tracking, it has a little more bang for its buck than some similar funds.
5. Amana Trust Growth (Ticker: AMAGX)
Amana Trust Growth is a socially responsible large-cap growth fund that invests according to Islamic principles, so it avoids companies in industries such as liquor, pornography, firearms and gambling. It’s a little on the expensive side, but the total return has been quite good, averaging over a percentage point more than the S&P since inception. And it’s been around since the 1990s, with a strong, consistent track record.
These are just a few of many funds that are available to those who want to include their values in the investing process. If that sounds like something you’d like to look into, here’s how to get started:
- 1. Establish your own value system, reflective of your views.
- 2. Do your research. Check out various companies and funds online. Do a general search, and then move on to Morningstar to see how expensive your choices are and how they’re rated.
- 3. Bring the best funds you find to a trustworthy independent financial adviser who can stress test them and analyze them for downsides you may have overlooked.
- 4. Then it’s back to you. Know yourself as an investor. Keep your risk tolerance in mind, because many of these funds can lag over time. Balance that with the possibility that if you aren’t investing in something you believe in, you might not be investing at all.
Kim Franke-Folstad contributed to this article.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
Michael Fritts is a licensed insurance agent with Fritts Financial, based in Knoxville, Tenn. Michael is an Investment Advisor Representative with Brookstone Capital Management, a Registered Investment Adviser. He received a bachelor's degree from Columbia College in Chicago, where he graduated magna cum laude. His goal is to help create retirement strategies that are custom-suited to clients by using a variety of investment and insurance products.
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